Five Banks Fined $3.4Billion For Foreign Exchange Scandal
FCA and CFTC issue fines whilst Barclays still being probed
The manipulation of the foreign exchange has gained fierce media attention, with the rigging scandal being slammed as ‘disgusting’ and ‘corruption’ by government ministers. But UK, US and Swiss authorities have now fined five banks and traders a total of $3.4billion (£2.1billion) for their part in the Forex fixing behaviour which has had a profound effect public trust of the financial sector.
International Business Times reports that the UK’s Financial Conduct Authority (FCA), Swiss regulator FINMA (Financial Market Supervisory Authority) and the US Commodity Futures Trading Commission issued monetary penalties on Citibank, HSBC, JPMorgan, The Royal Bank of Scotland (RBS) and UBS for attempting to manipulate the foreign exchange rates.
FCA chief executive Martin Wheatley warned, “The FCA does not tolerate conduct which imperils market integrity or the wider UK financial system. They must make sure their traders do not game the system to boost profits or leave the ethics of their conduct to compliance to worry about”.
“Today's record fines mark the gravity of the failings we found and firms need to take responsibility for putting it right. This is essential to restoring the public's trust in financial services and London maintaining its position as a strong and competitive financial centre”.
BBC News states that although the Forex is not necessarily supposed to be easy to manipulate, it is still possible for traders and banks to change the currency value in order to make a profit. Usually, holidaymakers are unlikely to notice a spike in currency rates when purchasing foreign money, but the biggest losers in all of this are the banks when they are found guilty of rigging.
According to the FCA, between 2008 and 2013 the banks had futile control over G10 FX traders and attempted to rig rates putting their interests ahead of that of their clients. This means that blatant risks regarding trading conduct, conflicts of interest and confidentially were ignored. If market participants club together, they can easily change prices and benefit from the movements of the rates. And it is key to note that revelations of the corruption further undermine trust of the financial system, which has been rocked by a series of scandals in recent years.
The news comes after the authorities announced a separate probe into Barclays for a series of scandals also, including the foreign exchange and Libor (London Inter-Bank Offered Rate). BCG Partners’ David Buik explains to LBC Radio that the Libor rate is used as a benchmark for millions of loans, mortgages and other financial products traded worldwide. Barclays used this rate, rigging the market in their favour and banks are also accused of bullying customers into hedging the cost of foreign exchange or interest rates.
British government ministers have slammed the behaviour of the banks. The Telegraph reports that Tory MP Andrea Leadsom blasted that ‘corruption is not a strong enough word’ to describe the behaviour of the financial industry giants and it will tarnish the reputation of the banking industry.
“I think every taxpayer will be completely horrified to see that throughout that period of the financial crisis where taxpayers were bailing out the financial system”, she told BBC Radio 4’s Today Programme. “There was still a group of foreign exchange traders and other traders who decided that they would rig the system to suit their bonuses”.
“There are literally hundreds of thousands of honest people, who work in banks and in call centres, and other financial services institutions up and down the country, who will be sitting over breakfast, absolutely devastated by this”, Leadsom added.
“Yet more news of a small group of corrupt people who bring down the entire brand of banking”.