UK Banks could face record fine over currency rigging
Watchdog warns RBS, HSBC, JP Morgan, Barclays, Citi and UBS they face multimillion-pound penalties that could top Libor payout
The Financial Conduct Authority has held discussions with six major banks this week amid concerns over currency rigging.
Six major banks caught up in the investigation into rigging the £3.5tn-a-day currency markets are being pressed by the regulator to agree to fines and public reprimands in the next eight weeks.
The Financial Conduct Authority (FCA) held discussions with each of the banks this week to warn them that they faced multimillion-pound penalties that could surpass the £160m levied on the Swiss bank UBS for rigging Libor – the biggest UK fine yet.
There have been six subsequent fines but the FCA and US investigators have yet to complete their regulatory actions against some other banks.
While the FCA is working on a coordinated settlement with the banks being investigated for currency rigging, it is also edging closer to concluding the Libor inquiry, which could result in other fines and reprimands this year.
It is also uncertain whether the banks will agree to a settlement, especially without agreement from the other regulators around the world also involved in investigations, particularly in the US where fines are larger. This week Andrew Bailey, deputy governor of the Bank of England, called for a “cards on the table” approach from regulators.
The allegations over the manipulation of currency markets were exposed after the Libor scandal shed light on the potential rigging of other financial markets – including in gold and silver – which were largely unregulated before the financial crisis.
The fines and settlements for fixing foreign exchange rates are expected to bring the release of a wave of emails and electronic chat messages similar to those published when Libor rigging fines were levied, detailing how traders offered each other bottles of champagne and illustrating the cavalier way in which traders regarded their actions.
One Libor submitter declared himself “like a whore’s drawers” while others were found referring to each other as “big boy” and offering to “pay you … whatever you want”.
In February, Wheatley warned that the banking allegations were “every bit as bad as they had been with Libor” as the industry braced for another hit to its reputation.
Mark Carney, the Bank of England governor, has also warned about the damage to the banks’ standing.” This is as serious as Libor, if not more so because this goes to the heart of integrity of markets,” he said in March.
The banks may favour an industry-wide settlement as it would avoid the need for one of them to go first. Days after Barclays settled over Libor fixing, it announced the resignation of its chairman, Marcus Agius, chief executive, Bob Diamond, and chief operating officer, Jerry del Missier.
But while bank shares rose on Friday on the prospect of a less-damaging industry-wide settlement, banks have also been warned about the impact of the fines on their business.
RBS, for instance, admitted in August that it could take a “material” hit to its profits as a result of any foreign exchange settlement.
The investigation into the foreign exchange markets is thought to centre on the way a benchmark known as WM/Reuters operates. It is used to price several currencies at 4pm each day, and the investigators appear to be focused on allegations that traders put in client orders before a frenetic 60-second window when the price is set.
The inquiry has also drawn in the Bank of England, which has appointed Lord Grabiner QC to scrutinise any involvement by its officials who, it has been alleged, knew that traders were sharing information about their clients’ positions.
The Bank has suspended one person, while at least 20 foreign exchange dealers are thought to have been suspended.
The rigging of foreign exchange markets is expected to become a criminal offence by the end of the year after the Treasury started consulting on new rules this week.