Banks Reach Settlement in Foreign Exchange-Rigging Probe
Major Financial Institutions See Resolution Over Allegations of Improper Behavior
LONDON—Five banks agreed Wednesday to pay a total of more than $3 billion to U.S. and British regulators to resolve allegations of improper behavior in the vast foreign-exchange market.
The settlements between the U.K.’s Financial Conduct Authority and the Commodity Futures Trading Commission and HSBC Holdings PLC, Royal Bank of Scotland Group PLC, UBS AG , Citigroup Inc. and J.P. Morgan Chase & Co. are the first in a flurry of expected settlements between various banks and regulators. The authorities have been looking into alleged wrongdoing in the currencies markets since last year.
The CFTC settlement was for a total of about $1.4 billion, while the FCA portion was £1.1 billion ($1.75 billion).
Barclays PLC, which had been in late-stage settlement talks with both regulators, pulled out at the last minute. The bank said in a statement that it had engaged with regulators and considered a settlement on “closely similar terms” to those announced on Wednesday but that after discussions with other regulators and authorities it had decided to seek a “more general coordinated settlement.”
The settlement agreements published Wednesday offer glimpses of bank traders communicating with each other in electronic chat-rooms and other venues in ways that authorities say were improper.
The settlements are the latest in a series of increasingly tough financial penalties against banks. Lenders have racked up tens of billions of dollars in penalties in recent years stemming from investigations into interest-rate manipulation, sanctions violations, and improperly selling a variety of financial products.
Wednesday’s deal is a rare example of regulators simultaneously settling allegations with multiple banks. Regulators are hoping to avoid a protracted settlement process that drags on for many years—the continuing investigation into manipulation of benchmark interest rates is approaching its seven-year anniversary. Banks, meanwhile, are eager to enter a group settlement that will avoid any one institution being singled out.
That setup has prompted criticism. The U.S. Justice Department and New York’s financial regulator, for example, are sitting out of Wednesday’s deal, and the latter has complained about the possibility of it giving banks a “sweetheart deal.”
The investigation into possible manipulation of foreign-exchange markets began in spring 2013 when the FCA started looking into allegations of wrongdoing. The probe initially focused on a key industry benchmark—the so-called fix calculated daily by WM/Reuters—but quickly mushroomed into an industrywide investigation that also dug into personal trading by bank employees.
Even before Wednesday’s settlement, the investigation has had ripple effects. Many banks have banned their employees from communicating with rivals via electronic-chat programs. Banks including UBS have restricted their employees from trading in their own accounts and from using mobile phones on the trading floor.
More than 30 traders, including some from all banks involved in Wednesday’s settlement, have been fired or suspended as part of the probe.
Some of those individuals are still facing criminal investigations in the U.S. and U.K., which aren’t likely to wrap up until at least next year, according to people familiar with the matter.