6 big U.S., U.K. banks to pay $5.6B in fines in foreign currency probe

U.S. and U.K. regulators have fined six major banks a total of more than $5.6 billion US after they manipulated the foreign exchange markets.

• Citigroup, JPMorgan, Royal Bank of Scotland, HSBC & UBS fined for rigging forex market

Four of the banks pleaded guilty to conspiring to manipulate the price of U.S. dollars and euros. They are:

• ​J.P. Morgan Chase & Co.
• Barclays PLC.
• Royal Bank of Scotland Group PLC.
• Citigroup Inc.

They will pay fines of $2.5 billion in a settlement with the U.S. Department of Justice. An additional $1.8 billion in fines has been levied by the U.S. Federal Reserve against six major banks.

New York state and the U.K. levied additional fines.

That's on top of the fines paid last November by five banks.

Swiss-based UBS AG pleaded guilty to manipulating the Libor benchmark (the foreign currency rate set in London), but was granted immunity on foreign exchange manipulation for being the first to report it. UBS AG faces a $203-million criminal fine. As well, the U.S. Federal Reserve fined the bank $342 million.

Manipulating currency markets

Bank of America faces no criminal charges, but will pay a fine of $205 million to the U.S. Federal Reserve.

Barclays's fine is a total of $2.4 billion as it did not join other banks in November to settle investigations by U.K., U.S. and Swiss regulators. It has fired eight of its employees in connection with the currency-fixing scheme.

The regulators determined that traders at five of the banks had illegal agreements with other traders to manipulate benchmark currency prices.

U.S. Attorney General Loretta Lynch said "almost every day" for five years from 2007, currency traders used a private electronic chat room to manipulate exchange rates.

Their actions harmed "countless consumers, investors and institutions around the world," she said.

Lynch said the fines were high to "deter competitors in the future from chasing profits without regard to fairness, to the law, or to the public welfare."

By agreeing not to buy or sell at certain times, the traders protected each other's trading positions by withholding supply of or demand for currency, and suppressing competition in the FX market, the department of justice said.

Traders at Bank of America, which received a lower fine, discussed the possibility of entering into similar agreements to manipulate prices.

The banks were also accused of sharing confidential information about clients.

Must improve oversight

Michael King, from the Ivey School of Business, said a lot of the offences took place after the financial crisis and he fears the banks may not have learned from their behaviour during that time.

"The fine is actually relatively small as a percentage of the market capitalization of these banks. The largest was Barclays with $2.4 billion — that's about three per cent of their market capitalization," King said, pointing out that the percentage was much lower for the other banks.

He suggests more responsibility has to be taken by individuals, including executives at the top.

"I think the issue here is these are fines against the organizations. They're not fines against the individuals involved. It seems unfair that the shareholders, the investors are going to be the ones shouldering the fine, not the individuals who benefited from it," he said.

The Fed has ordered all the banks involved to improve oversight of their traders and strengthen controls in their foreign exchange divisions. It is charging senior management with responsibility for improving internal audits and other checks on its systems.

In addition, it has ordered the banks not to give work to the individuals who were involved in unethical conduct.

There could soon be charges laid against some bank employees, as the Fed is collaborating with the U.S. Department of Justice on the investigation.

Citigroup, Barclays, JPMorgan, RBS and UBS have each agreed to a three-year period of corporate probation, which will require regular reporting to authorities as well as a clean record.