Five big banks hit with $3.2bn forex rigging fines

Global regulators announced Wednesday $3.2 billion (2.5 billion euros) in fines against five major US and European banks for attempting to manipulate foreign exchange markets.

The hefty fines centred on London, the world's biggest hub for the $5.3-trillion-per-day forex market, and the British government hailed a move to "clean up corruption" in the City as the financial centre's reputation has been badly damaged in recent years.

British banks HSBC and Royal Bank of Scotland (RBS), US peers Citigroup and JPMorgan Chase, and Swiss lender UBS have all been fined by Britain's Financial Conduct Authority (FCA) and the US Commodity Futures Trading Commission (CFTC).

The FCA hit the five banking giants with a record penalty of £1.1 billion ($1.7 billion, 1.4 billion euros), while the CFTC has fined them $1.4 billion.

The Swiss Financial Market Supervisory Authority (FINMA) also announced a settlement of 134 million Swiss francs ($139 million) with UBS over the matter.

Barclays uncertainty

However Barclays -- which was at the heart of the 2012 Libor rate-rigging affair -- was not included in the settlements and remains under investigation by authorities.

The uncertainty sent Barclays' share price sliding 2.15 percent to 229.55 pence in early afternoon deals on the falling FTSE 100 index. The bank had last month set aside £500 million for a potential fine to settle forex allegations.

In recent years, a string of scandals has damaged the reputation of major banks, which sparked the notorious 2008 global financial crisis that led to a subsequent worldwide recession.

The FCA said that it found "ineffective controls" at the five banks between 2008 and 2013, allowing traders "to put their banks' interests ahead of those of their clients, other market participants and the wider UK financial system".

"The traders put their own interests ahead of their customers. They attempted to manipulate the market and abused the trust of the public and us as regulators," FCA chief executive Martin Wheatley told reporters at a press conference in London.

The FCA said that it had proposed new rules for the 36 banks operating in the foreign exchange market.

The investigation homed in on trading in the world's top 10 currencies, known as the "G10".

Traders at the different banks "formed tight knit groups in which information was shared about client activity", the British regulator said.

It added that traders used code to identify clients without naming the them. They referred to themselves with nicknames like "The 3 Musketeers", "The Players" and "The A-team".

Conflicts of interest

"The banks failed to manage obvious risks around confidentiality, conflicts of interest and trading conduct," the FCA said.

At the same time, the CFTC said in a separate statement that the five banks were being punished for "attempted manipulation of, and for aiding and abetting other banks' attempts to manipulate, global foreign exchange benchmark rates to benefit the positions of certain traders."

It added that Citi, HSBC, JPMorgan, RBS and UBS had "coordinated trading with other banks in private chat rooms in their attempts to manipulate" the market.

The CFTC also ordered the banks to "cease and desist from further violations, and take specified steps to implement and strengthen their internal controls and procedures."

Bank of England governor Mark Carney expressed deep concern over the forex scandal.

"We have been concerned about the circumstances around this and the conduct in markets more generally," Carney said Wednesday.

News of the FCA fine was welcomed by the British government.

"Today we take tough action to clean up corruption by a few so that we have a financial system that works for everyone," said finance minister George Osborne.

"The banks that employed them face big fines -- and I will ensure that these fines are used for the wider public good."

The total FCA fine is a record amount and eclipses the £532 million penalty it handed down over the Libor scandal.

Christopher Dembik, an economist at Saxo Bank in France, said the fines were "extremely weak and perfectly manageable" compared to the banks' holdings.

But he added that it did show a "willingness" of regulators "not to repeat the mistakes made in the last global financial crisis."