Six Big Banks Fined $4.3B in FX Rate Rigging Scam

Six of the world’s largest banks have been fined a total of about $4.3 billion for conspiring last year to rig foreign-exchange rates, financial regulators in the U.S., Britain and Switzerland announced on Wednesday.

Reaching settlements with the regulators were Bank of America (NYSE: BAC), J.P. Morgan Chase (NYSE: JPM), Citibank (NYSE: C), HSBC Bank (NYSE: HSBC), The Royal Bank of Scotland (NYSE: RBS) and UBS AG (NYSE: UBS).

Citigroup and J.P. Morgan are each on the hook of an array of global regulators for about $1 billion apiece for their role in the alleged manipulation. Barclays PLC (NYSE: BCS), also a major player in the foreign exchange market and a target in the international probe, declined to join in the settlements announced Wednesday.

The fines are the first wave of penalties stemming from a year-long global investigation into charges that traders at many of the world’s biggest banks colluded to boost exchange rates paid by hedge fund managers and others who speculate in the $5.3 trillion currency markets. The traders then skimmed the illicit profits to boost the bottom lines of their banks.

The investigation is ongoing and more civil fines are expected against numerous other banks. Meanwhile, the U.S. Department of Justice and Britain’s Serious Fraud Unit are conducting criminal probes.

On Wednesday, the U.S. Office of the Comptroller of the Currency announced a combined $950 million in fines against Bank of America, Citibank and J.P. Morgan. Citi and J.P. Morgan each will pay $350 million and Bank of America $250, according to a statement released by the OCC.

“These enforcement actions were taken because several large banks permitted an environment to develop in which unscrupulous traders discussed manipulating foreign exchange markets. Our action today, and those of our fellow regulatory agencies here in the United States, in the United Kingdom and in Europe, sends a very strong signal that such misconduct will not be tolerated,” said Comptroller of the Currency Thomas J. Curry in the statement.

The OCC’s probe found that between 2008 and 2013 some foreign exchange traders at the banks under investigation held discussions in online chat rooms about colluding to manipulate exchange rates to skim profits either for the traders or their bank. Also, the traders shared confidential bank information with one another, including customer orders and rate spreads.

The OCC also found that traders discussed actions that would potentially hurt their clients but benefit themselves and their banks and agreed not to trade in particular currencies.

The regulator said the banks didn’t have to proper oversight or internal controls to detect or prevent the illegal activities, allowing the manipulation to go on for years.

In addition to the OCC fines, a total of $3.3 billion in penalties were also levied Wednesday by the U.S. Commodity Futures Trading Commission, Britain’s Financial Conduct Authority and the Swiss Financial Market Supervisory against Citibank, HSBC, J.P. Morgan, The Royal Bank of Scotland and UBS.

Aitan Goelman, the CFTC’s Director of Enforcement, said in a statement: “The setting of a benchmark rate is not simply another opportunity for banks to earn a profit. Countless individuals and companies around the world rely on these rates to settle financial contracts, and this reliance is premised on faith in the fundamental integrity of these benchmarks. The market only works if people have confidence that the process of setting these benchmarks is fair, not corrupted by manipulation by some of the biggest banks in the world.”

According to the CFTC’s statement, the foreign exchange traders who were investigated by regulators attempted to manipulate the World Markets/Reuters Closing Spot Rates, one of the most widely referenced foreign exchange benchmarks in the world. The rates are used to establish the relative values of different currencies and they reflect the rates at which one currency is exchanged for another currency.

Foreign exchange benchmark rates are used for pricing such widely-used transactions as cross-currency swaps, foreign exchange swaps, spot transactions, forwards, options, futures and other financial derivative instruments.

The CFTC said “the integrity of the WM/R Rates and other FX benchmarks is critical to the integrity of the markets in the United States and around the world.”

The foreign exchange fines were announced about two years after many of the world’s biggest banks settled with British and U.S. regulators following an investigation into manipulation of the London interbank offered rate (or LIBOR), a widely-used benchmark interest rate that affects all manner of securities swaps and is used to determine home loans.