Fed Fines HSBC $175 Million for Foreign Exchange Trading Practices -- Update

By Ryan TracyFeaturesDow Jones Newswires

The Federal Reserve on Friday said a former HSBC Holdings PLC executive currently on trial in New York misused confidential information while carrying out foreign exchange trades for a client.

Mark Johnson, HSBC's former global head of FX cash trading, is on trial in New York this month for allegedly frontrunning a $3.5 billion currency trade for a client, in a deal that made millions of dollars in profits for the bank. Mr. Johnson denies the charges. His lawyer didn't immediately return a call.

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On Friday, the Federal Reserve highlighted the alleged actions by Mr. Johnson as it fined HSBC $175 million for more broadly failing to supervise its foreign-exchange trading business.

It 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 Mr. Johnson and Mr. Stuart bought pounds first for HSBC's own accounts, driving up the price. The bank made around $8 million from the trades, prosecutors say.

The Federal Reserve in a press release 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 Federal Reserve and declined to comment on Mr. Johnson's trial. The bank isn't named as a party in the action against Mr. Johnson and Mr. 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 Federal Reserve studied. But none had explicitly singled out the behavior of Mr. Johnson and Mr. Scott. Banks collectively have paid billions of dollars in penalties since a global regulatory probe into foreign-exchange market activities started in 2013.

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

Write to Ryan Tracy at ryan.tracy@wsj.com

(END) Dow Jones Newswires

September 29, 2017 12:57 ET (16:57 GMT)