The CFTC fines 5 banks $1.4 Billion for Attempting Forex Price Manipulation

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There's no need to wonder if the biggest players on the forex field try to manipulate exchange rates. The CFTC just slapped 5 of the biggest banks with $1.4 Billion in fines. This brings the total fines for this sort of activity to over $3.34 Billion.

Additional penalties are being imposed by the FCA and FINMA.

The latest from the CFTC...

November 12, 2014

CFTC Orders Five Banks to Pay over $1.4 Billion in Penalties for Attempted Manipulation of Foreign Exchange Benchmark Rates

Citibank, HSBC, JPMorgan, RBS, and UBS Coordinated Trading with Other Banks in Private Chat Rooms in Their Attempts to Manipulate

Washington, DC
– The U.S. Commodity Futures Trading Commission (CFTC) issued five Orders filing and settling charges against Citibank N.A. (Citibank), HSBC Bank plc (HSBC), JPMorgan Chase Bank N.A. (JPMorgan), The Royal Bank of Scotland plc (RBS) and UBS AG (UBS) (collectively, the Banks) for attempted manipulation of, and for aiding and abetting other banks’ attempts to manipulate, global foreign exchange (FX) benchmark rates to benefit the positions of certain traders.

The Orders collectively impose over $1.4 billion in civil monetary penalties, specifically: $310 million each for Citibank and JPMorgan, $290 million each for RBS and UBS, and $275 million for HSBC.

The Orders also require the Banks to cease and desist from further violations, and take specified steps to implement and strengthen their internal controls and procedures, including the supervision of their FX traders, to ensure the integrity of their participation in the fixing of foreign exchange benchmark rates and internal and external communications by traders. The relevant period of conduct varies across the Banks, with conduct commencing for certain banks in 2009, and for each bank, continuing into 2012.

Aitan Goelman, the CFTC’s Director of Enforcement, stated: “The setting of a benchmark rate is not simply another opportunity for banks to earn a profit. Countless individuals and companies around the world rely on these rates to settle financial contracts, and this reliance is premised on faith in the fundamental integrity of these benchmarks. The market only works if people have confidence that the process of setting these benchmarks is fair, not corrupted by manipulation by some of the biggest banks in the world.”

According to the Orders, one of the primary benchmarks that the FX traders attempted to manipulate was the World Markets/Reuters Closing Spot Rates (WM/R Rates). The WM/R Rates, the most widely referenced FX benchmark rates in the United States and globally, are used to establish the relative values of different currencies, which reflect the rates at which one currency is exchanged for another currency. FX benchmark rates, such as the WM/R Rates, are used for pricing of cross-currency swaps, foreign exchange swaps, spot transactions, forwards, options, futures and other financial derivative instruments. The most actively traded currency pairs are the Euro/U.S. Dollar, U.S. Dollar/Japanese Yen, and British Pound Sterling/U.S. Dollar. Accordingly, the integrity of the WM/R Rates and other FX benchmarks is critical to the integrity of the markets in the United States and around the world.

The Orders find that certain FX traders at the Banks coordinated their trading with traders at other banks in their attempts to manipulate the FX benchmark rates, including the 4 p.m. WM/R fix. FX traders at the Banks used private chat rooms to communicate and plan their attempts to manipulate the FX benchmark rates. In these chat rooms, FX traders at the Banks disclosed confidential customer order information and trading positions, altered trading positions to accommodate the interests of the collective group, and agreed on trading strategies as part of an effort by the group to attempt to manipulate certain FX benchmark rates. These chat rooms were sometimes exclusive and invitation only. (Examples of the coordinating chats are attached under Related Links.)

The Orders also find that the Banks failed to adequately assess the risks associated with their FX traders participating in the fixing of certain FX benchmark rates and lacked adequate internal controls in order to prevent improper communications by traders. In addition, the Banks lacked sufficient policies, procedures and training specifically governing participation in trading around the FX benchmarks rates; and had inadequate policies pertaining to, or sufficient oversight of, their FX traders’ use of chat rooms or other electronic messaging.

According to the Orders, some of this conduct occurred during the same period that the Banks were on notice that the CFTC and other regulators were investigating attempts by certain banks to manipulate the London Interbank Offered Rate (LIBOR) and other interest rate benchmarks. The Commission has taken enforcement action against UBS and RBS (among other banks and inter-dealer brokers) in connection with LIBOR and other interest rate benchmarks. (See information below.)

The Orders recognize the significant cooperation of Citibank, HSBC, JPMorgan, RBS, and UBS with the CFTC during the investigation of this matter. In the UBS Order, the CFTC also recognizes that UBS was the first bank to report this misconduct to the CFTC.

In related matters, the United Kingdom Financial Conduct Authority (FCA) issued Final Notices regarding enforcement actions against the Banks and imposing collectively penalties of £1,114,918,000 (approximately $1.7 billion), and the Swiss Financial Market Supervisory Authority (FINMA) has issued an order resolving proceedings against and requiring disgorgement from UBS AG.

The CFTC thanks and acknowledges the invaluable assistance of the U.S. Department of Justice, the Federal Bureau of Investigation, the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Federal Reserve Bank of New York, the FCA, and FINMA.

CFTC Division of Enforcement staff members responsible for these cases are Robert Howell, Jonathan Huth, Traci Rodriguez, Jennifer Smiley, David Terrell, Melissa Glasbrenner, Heather Johnson, Jordon Grimm, Elizabeth Streit, and Gretchen L. Lowe.

* * * * *

With these Orders, since June 2012, the CFTC has imposed penalties of over $3.34 billion on entities relating to acts of attempted manipulation, completed manipulation, and/or false reporting with respect to global benchmarks. See In re Lloyds’ Banking Group, PLC , CFTC Docket No. 14-18 (July 28, 2014)($105 million)(CFTC Press Release 6966-14); (In re RP Martin Holdings Limited and Martin Brokers (UK) Ltd., CFTC Docket No. 14-16 (May 15, 2014) ($1.2 Million penalty) (CFTC Press Release 6930-14); In re Coöperatieve Centrale Raiffeisen-Boerenleenbank B.A. (Rabobank), CFTC Docket No. 14-02, (October 29, 2013) ($475 Million penalty) (CFTC Press Release 6752-13); In re ICAP Europe Limited, CFTC Docket No. 13-38 (September 25, 2013) ($65 Million penalty) (CFTC Press Release 6708-13); In re The Royal Bank of Scotland plc and RBS Securities Japan Limited, CFTC Docket No. 13-14 (February 6, 2013) ($325 Million penalty) (CFTC Press Release 6510-13); In re UBS AG and UBS Securities Japan Co., Ltd., CFTC Docket No. 13-09) (December 19, 2012) ($700 Million penalty) (CFTC Press Release 6472-12); In re Barclays PLC, Barclays Bank PLC, and Barclays Capital Inc., CFTC Docket No. 12-25 (June 27, 2012) ($200 million penalty) (CFTC Press Release 6289-12). In these actions, the CFTC ordered each institution to undertake specific steps to ensure the integrity and reliability of the benchmark interest rates.

Media Contact
Dennis Holden
202-418-5088
I'd like to thank the CFTC for their efforts to make forex trading more fair to all traders.


Original press release at the CFTC's website
 

GraggV

Recruit
Messages
6
Unfortunately this isn't even walking around money for these folks. They will not learn a lesson until a few of them spend some time behind bars.
 

Pharaoh

Colonel
Messages
19,900
Unfortunately this isn't even walking around money for these folks. They will not learn a lesson until a few of them spend some time behind bars.
A billion here, a billion there. Pretty soon you're talking about real money. :D

The good thing is that the fines keep escalating. Hopefully if there's another round of this, there will be some prison time thrown in on top.
 

GraggV

Recruit
Messages
6
A billion here, a billion there. Pretty soon you're talking about real money. :D

The good thing is that the fines keep escalating. Hopefully if there's another round of this, there will be some prison time thrown in on top.
Fines won't do the trick IMO...they will just get factored in as a part of "The Cost of Doing Business"

Jail time on the other hand sends a message that there are REAL consequences
 

PipStar

Sergeant
Messages
223
Let's get this right. The banks made possibly 50 Billion and get slapped with 3.34 Billion in fines. Crime pays and it will never stop because the profits made are worth the risk of paying a smaller fine.
 

sun85

Private, 1st Class
Messages
27
I hope financial regulation institutions in my country may work as good as CFTC.
 

Master Yoda

Captain
Messages
2,929
Unfortunately this isn't even walking around money for these folks. They will not learn a lesson until a few of them spend some time behind bars.
Very true.

It sounds like a good deal to me to make Billions out of illegal activity and to pay such a low fine (comparing to the money they stole it's nothing)
 

Pharaoh

Colonel
Messages
19,900
The fines are definitely too low, but this is still just the first round of penalties. The CFTC has a history of hitting with lower fines as a warning shot to let financial firms know that they need to change their ways before damaging penalties are levied. If the banks don't get a handle on this, the next round will be far less pleasant. I suspect that if a 3rd round becomes necessary, the fines will be 10-20 times what was paid this time and that's also when we'll start seeing some people being banned from the industry and others spending some quality time in a federal penitentiary.
 

iMusingKiMi

Sergeant
Messages
896
The fines are definitely too low, but this is still just the first round of penalties. The CFTC has a history of hitting with lower fines as a warning shot to let financial firms know that they need to change their ways before damaging penalties are levied. If the banks don't get a handle on this, the next round will be far less pleasant. I suspect that if a 3rd round becomes necessary, the fines will be 10-20 times what was paid this time and that's also when we'll start seeing some people being banned from the industry and others spending some quality time in a federal penitentiary.
1.4 B to a 4 trillion daily turnover market are just way too low. How much money do you think they should have in manipulating this?
 

Pharaoh

Colonel
Messages
19,900
I'm not sure how much they made. A lot less than the current round of fines. I'm looking forward to seeing how big the fines are in the next round. The CFTC doesn't find repeat offenses amusing, so will likely scale up the punishments very quickly.
 
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