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November 17, 2014

Barclays may face massive new penalty over currency rigging

Barclays could face a huge new penalty for rigging currency markets after pulling out at the 11th hour from the settlement talks that led to £2.6bn of fines being slapped on six other big players in the currency markets.

Barclays will not be eligible for the 30% discount on the fines handed to its rivals in exchange for settling early after its surprise move not to participate in the settlement with US and UK regulators.

The bank, which was the first to be fined for rigging Libor in 2012, is reported not to have agreed to the settlement with the UK’s Financial Conduct Authority and the US commodity futures trading commission because of continuing talks with another US regulator.

It was the only one of the banks involved in talks over the ground-breaking settlement that is also regulated by the New York State department of financial services (DFS), run by Benjamin Lawsky, the American attorney who has in the past taken a tough stance over wrongdoing at banks.

Barclays said it had considered a settlement with the FCA and the CFTC on terms similar to the other banks – Royal Bank of Scotland, HSBC, UBS, JP Morgan and Citigroup.

“However, after discussions with other regulators and authorities, we have concluded that it is in the interests of the company to seek a more general coordinated settlement,” the bank said.

Barclays shares fell more than 2% to 229.5p as investors worried about when the investigation could end, after the FCA said it would “progress our investigation into the firm” and also look at its “wider FX [foreign exchange] business areas”.

In Britain, UBS was handed the biggest fine, at £233m, followed by £225m for Citibank, JP Morgan at £222m, RBS at £217m and £216m for HSBC. In the US, the regulator fined Citibank and JP Morgan $310m (£196m) each, $290m (£184m) each for RBS and UBS, and $275m (£174m) for HSBC.

The Swiss regulator – which also found issues with UBS’s metal trading – also punished the Swiss bank for having failed to investigate warnings of currency market manipulation.

Another US regulator, the Office of the Comptroller of the Currency, also imposed fines on JP Morgan, Citi and Bank of America, taking the day’s tally to £2.6bn. The banks faced further fines from regulators whose investigations are continuing.

The FCA and the CFTC published hundreds of pages of documents alongside their findings against five banks. Chatroom talk between traders showed them discussing information about their clients’ orders with names such as “3 musketeers” and the “A-team”.

The City minister, Andrea Leadsom, said those who had done wrong “will not be back in a dealing room on a big salary”. She told BBC Radio 4’s Today programme: “It’s completely disgusting. I think taxpayers will be horrified … I don’t know if corruption is a strong enough word for it.”

The FCA said 36 firms – including those involved in the announcement – would now be part of an “industry-wide remediation” to root out failings in the market. Senior managers will be required to attest to changes to their practices and to conduct root-and-branch reviews of their businesses.

“A lot of it is not rocket science,” said Martin Wheatley, chief executive of the FCA, suggesting that, for instance, firms needed to look at whether employees were using mobile phones in dealing rooms. “All firms need to work with us to deliver real and lasting change to the culture of the trading floor.

This is essential to restoring the public’s trust in financial services and London maintaining its position as a strong and competitive financial centre,” said Wheatley.

The focus also turned to bonuses and whether firms would face legal action after agreeing to the fines for market manipulation that covered the period from 2008 to October last year – a period when banks such as RBS were being bailed out with billions of pounds of taxpayers’ money.

Clive Adamson, director of supervision at the FCA, said he expected firms to “think hard” before deciding the size of bonuses. RBS said it would look at clawing back bonuses and what effect the settlement should have on bonuses for senior management.

No current bonus payouts will take place until an internal investigation is completed and an update on that investigation was promised before the end of the year.

“Today is a stark reminder of the importance of culture and integrity in banking and we will rightly be judged on the strength of our response,” said RBS’s outgoing chairman, Sir Philip Hampton. RBS had received complaints from two clients, in October 2010 and January 2012, about the activities of forex traders and in November 2011 one of its own traders raised concerns, which were not heeded.

“With hindsight, I don’t think we followed them up terribly fully,” said Hampton, who was chairman of the bank for most of the period. UBS has been ordered by its domestic regulator to limit its payouts to foreign exchange traders. Lawyers warned that the banks could face a flood of legal action after the fines.

Anthony Maton at claimant litigation firm Hausfeld said: “Any person or entity that engaged in FX transactions directly or indirectly with one or more of the colluding banks between 2008 and 2013 may have a civil claim.”

Simon Hart, banking litigation partner at lawyers RPC, said: “These fines and the evidence published today could trigger a flood of civil litigation from pension funds and other fund managers that lost money because of forex manipulation moving prices against them.”

The other regulators still investigating include the department of justice in the US and authorities in Asia. The US Federal Reserve announced it was also investigating possible improper conduct in foreign exchange markets.

The FCA said Barclays was the only bank it was continuing to formally investigate, suggesting that others such as Deutsche Bank were not facing action by the UK regulator.

theguardian.com

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