Banks Pay Fines for Forex Rigging

Five banks have agreed to a settlement of charges of rigging Forex price fixes. This investigation has been going on for a couple of years and has to do with traders meeting online in chat rooms to rig the mid-day price fixes for various Forex currency pairs. An article in Forbes reports that there are five banks in a $3.3 Billion Forex settlement.

UBS , Citigroup C -0.98%, JPMorgan Chase JPM -1.47%, Royal Bank of Scotland and HSBC have agreed to pay a total of $3.3 billion in fines to settle a foreign exchange market manipulation probe among regulators in the United States and Europe.

While Wednesday’s settlement is among the first tied to the $5.3 trillion-a-day foreign exchange market, it resembles similar investigations into the manipulation of interest rate benchmarks and is likely to lead to billions more in fines and legal costs, in addition to criminal inquiries.

The FX market probe, led by the U.S. Commodity Futures Trading Commission, Britain’s Financial Conduct Authority and the Swiss Financial Market Supervisory Authority, hinges on traders’ use of instant messages to coordinate their buying and selling of currencies at the market close to manipulate foreign exchange prices in their favor.

As the article notes there is more to come. Criminal charges against individuals, for example, could be used to deter rogue traders from repeating this sort of Forex conspiracy. However, not all banks involved have agreed to settlement terms.

Barclays Bails Out of Settlement

As other banks pay fines for Forex rigging Barclays is holding out, apparently in hopes of getting a better deal. It may be that the bank wants assurance that when they have paid the bill that the matter will be totally settled. According to the Wall Street Journal:

Barclays PLC was nearing an agreement to resolve a U.S. and British investigation into its alleged currencies-rigging efforts, but it pulled out of settlement talks at the last minute because of complications involving New York’s banking regulator, according to people familiar with the matter.

As a result, when the U.K.’s Financial Conduct Authority and the U.S. Commodity Futures Trading Commission announced multibank settlements Wednesday morning, Barclays wasn’t included. The news caught investors by surprise, sending shares in Barclays down 1.75% in morning trading.

Apparently the New York regulator wants tougher terms and monitoring as well as simply having banks pay fines for Forex rigging. They are said to want monitors in place and on site in trading operations.

An Overview of the Forex Trading Scandal

An informative article in ABC News online takes a broad view of the Forex trading scandal. Here are a few of the high points.

Regulators in the U.S. and Europe found that the banks had failed to adequately train and supervise foreign currency traders. As a result, traders were able to form groups that shared information and sought to manipulate the market.

The scandal could become even bigger than the one surrounding the rigging of the London interbank offered rate, or LIBOR, which resulted in billions in fines for the banks implicated. Experts say that because the forex probe goes to the integrity of the markets, rather than just a single rate, it could have greater repercussions.

Regulators found that the manipulation occurred between Jan. 1, 2008 and Oct. 15, 2013.

The scandal touched the Bank of England earlier this year, when it suspended an employee and launched a sweeping investigation that examined 15,000 emails, 21,000 Bloomberg and Reuters chat room records and 40 hours of telephone recordings.

Apparently bank of England regulators were aware of some activity but took no early action. As banks pay fines for Forex rigging we can hope that regulators follow through with appropriate oversight in foreign exchange markets. The purpose of the Forex market is to support foreign trade and untrustworthy markets could damage a slowly recovering global economy.