Regulators Impose Record Fines over FOREX Rigging

November saw the big banks forced to make amends for yet another banking scandal.

The scandal in question was FOREX rigging. Allegations emerged that many traders worldwide had colluded to rig the spot price of certain currencies, in order to influence the markets and currency trading in their favour. The allegations were investigated by financial fraud and regulatory agencies in the UK, US and other countries.

The result of the parallel investigations was to prove that such rigging of the FOREX markets did indeed occur between 2009 and 2012. Essentially, groups of traders had electronically got together at key times during trading day to collectively fix the spot price of certain currencies. The day’s trading would then proceed around those fixed prices- to the advantage of the colluding traders.

In response, many bank chiefs have been keen to stress that it was the work of one or two rogue currency traders. Banking officials have also been keen to stress that the banking sector does not condone such behaviour, and that FOREX rigging is one of the many past misdeeds of the banking industry which are being brought to light, and amends being made. With the increased scrutiny, scope and powers of financial regulators, the industry had cleaned up its act, and is more transparent than previously, in efforts to gain public and political confidence.

The investigations into FOREX are a reminder, however, of past banking misdeeds and excesses- and a reminder of how banking should not operate. Indeed, the international investigations have resulted in record fines being imposed on the banks in question.

November saw six banks fined collectively £2.6bn by UK and US regulators over the FOREX scandal. The American Commodity Futures Trading Commission (CFTC) imposed fines of $1.4bn upon five banks, including banking giants JP Morgan Chase, Citibank and Bank of America. The Office of the Comptroller of the Currency (OCC) added a further $950m in fines to three banks.

In the UK, the Financial Conduct Authority (FCA) fined several HSBC and RBS over £430m collectively. With additional fines imposed by the FCA on the US banks, overall the FCA has imposed a record of £1.1bn in fines over FOREX- the largest fines ever imposed by the FCA or its predecessor regulator, the FSA. Commenting on the fines, FCA Chief Executive Martin Wheatley stated that “this isn’t the end of the story…The individuals themselves will face the consequences [of their actions].”

Separately, Swiss financial regulator FINMA fined UBS CHF 134m for their role in the price fixing. In another related but separate investigation, the Bank of England was itself cleared of any wrongdoing. There were allegations that the Bank of England had known about the spot fixing, but had taken no action. A report by Lord Gardiner, released at the same time, cleared Bank of England officials of any wrongdoing; “There was no evidence that any Bank of England official was involved in any unlawful or improper behaviour in the FX [foreign exchange] market,” the report ultimately found. This was after a senior Bank executive had been suspended, and fired shortly before the report was published; the Bank stated that that was “unrelated”.

In response, all the banks implicated and fined were swift to comment, and take action.
However, as one commentator noted, no firm disciplinary action has been taken against anyone. According to Professor Mark Taylor, a former foreign exchange trader, and currently dean at Warwick Business School, the fines are “relatively small beer for banks that regularly report billions of dollars in annual profit…The interesting thing is that there are no individuals named as yet, and no individual prosecutions. This is still a possibility and it will be interesting to see how that pans out. At the moment, it’s really only the shareholders – which in the case of RBS means British taxpayers – who suffer from these fines.”

The British government also commented on the fines, with Chancellor of the Exchequer George Osborne and Shadow Chancellor Ed Balls both commenting on the need for change in banking culture, and to clear up the corruption and excesses of the past.  Both politicians stressed the need for reform of the banking sector

Another banking scandal unearthed, and addressed. Just like the more well know PPI scandal, FOREX fixing was indeed a past event, and also shows just how intolerant the regulators and regulations are becoming to any such excesses and scandals. However, despite tough words and actions from regulators, clearly it is insufficient. More needs to be done to restore faith, trust and decency to banking. However, there has been a lot of progress in that regard, as the investigation and fines into this particular scandal shows.

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