HSBC Is Slapped With Big Fine by Fed -- WSJ

By Margot Patrick and Ryan Tracy Features Dow Jones Newswires

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (September 30, 2017).

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The Federal Reserve fined HSBC Holdings PLC $175 million for failing to adequately supervise its foreign-exchange trading business and said activities by two senior traders now being prosecuted are examples of the lack of oversight.

Mark Johnson, HSBC's former global head of foreign-exchange cash trading, is on trial in New York for allegedly trading ahead of a $3.5 billion currency transaction for a client. Mr. Johnson denies the charges. His lawyer didn't immediately return a call.

The Fed said the bank's deficient policies and procedures allowed Mr. Johnson and another senior trader, Stuart Scott, to misuse information "in a manner that benefited them and their trading desk" to the detriment of the client. Mr. Scott has also been charged and is contesting extradition from the U.K. to stand trial. He denies the charges.

In 2011, HSBC client Cairn Energy PLC hired the bank to convert proceeds from the sale of an Indian subsidiary into sterling.

Prosecutors allege Messrs. Johnson and Scott bought pounds first for HSBC's own accounts, driving up the price. The bank made about $8 million from the trades, prosecutors say.

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The Fed said the British bank "failed to detect and address its traders misusing confidential customer information, as well as using electronic chat rooms to communicate with competitors about their trading positions."

An HSBC spokesman said the bank was pleased to have resolved the matter with the Fed and declined to comment on Mr. Johnson's trial. The bank isn't named as a party in the action against Messrs. Johnson and Scott in New York.

The fine comes after other regulators also levied penalties and ordered remedial action at HSBC over activities in the same period between 2008 and 2013 that the Fed studied. But none had explicitly singled out the behavior of Messrs. Johnson and Scott.

Banks collectively have paid billions of dollars in penalties since a global regulatory probe into foreign-exchange market activities started in 2013.

The Fed on Friday ordered HSBC to improve risk management in its foreign-exchange business.

Write to Margot Patrick at margot.patrick@wsj.com and Ryan Tracy at ryan.tracy@wsj.com

(END) Dow Jones Newswires

September 30, 2017 02:47 ET (06:47 GMT)