Forex scandal
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The forex scandal (also known as the forex probe) is a 2013 financial scandal that involves the revelation, and subsequent investigation, that banks
Background
The foreign exchange market (forex) has been largely unregulated, because regulators considered it "too big to be manipulated".[2]
Investigation
Don't want other numpty's in mkt to know [about information exchanged within the group], but not only that is he gonna protect us like we protect each other ...
—
At the center of the investigation were the transcripts of electronic
At least 15 banks including Barclays, HSBC, and Goldman Sachs disclosed investigations by regulators. Barclays, Citigroup, and JPMorgan Chase all suspended or placed on leave senior currency traders. Deutsche Bank, continental Europe’s largest lender, was also cooperating with requests for information from regulators.[9][10] Barclays, Citigroup, Deutsche Bank, HSBC, JPMorgan Chase, Lloyds, RBS, Standard Chartered, UBS and the Bank of England as of June 2014 had suspended, placed on leave, or fired some 40 forex employees.[7][11][12][13] Citigroup had also fired its head of European spot foreign exchange trading, Rohan Ramchandani.[14] Reuters reported hundreds of traders around the world could be implicated in the scandal.[15]
Effects
As of December 2014, the monetary losses caused by manipulation of the forex market were estimated to represent $11.5 billion per year for Britain’s 20.7 million pension holders alone (£7.5B/year).[16][failed verification] The manipulations affected customers all around the world, for over a decade. The manipulations' overall estimated cost is not yet fully known.
Fines
Bank | CFTC[18] | DFS | DOJ[19] | FCA[20] | Fed[21]
|
FINMA[22] | OCC[23] | Total |
---|---|---|---|---|---|---|---|---|
BofA | 205 | 250 | 455 | |||||
Barclays[24][25][26] | 400 | 635 | 650 | 441 | 342 | 2,468 | ||
Citibank | 310 | 925 | 358 | 342 | 350 | 2,285 | ||
HSBC | 275 | 343 | 618 | |||||
JPMorgan | 310 | 550 | 352 | 342 | 350 | 1,904 | ||
RBS | 290 | 395 | 344 | 274 | 1,303 | |||
UBS | 290 | 371 | 342 | 145 | 1,148 | |||
Total | 1,875 | 635 | 2,520 | 2,209 | 1,847 | 145 | 950 | 10,181 |
On 12 November 2014, the United Kingdom's
The CFTC found that currency traders at the five banks coordinated their trading with traders at other banks in order to manipulate the foreign exchange benchmark rates, including the 16:00 WM/Reuters rates. Currency traders at the banks used private chatrooms to communicate and plan their attempts to manipulate the foreign exchange benchmark rates. In these chatrooms, traders at the banks disclosed confidential customer order information and trading positions, changed trading positions to accommodate the interests of the collective group, and agreed on
On 20 May 2015, the five banks pleaded guilty to felony charges by the
On 18 November 2015 Barclays was fined an additional $150m for automated electronic foreign exchange misconduct.[26]
Criminal proceedings
On 19 December 2014 the first and only known arrest was made in relation to the scandal. The arrest of a former RBS trader took place in Billericay, Essex, and was conducted by the City of London Police and the Serious Fraud Office.[30]
Several traders have been incarcerated for market manipulation in recent years. The longest conviction was that of Tom Hayes; Hayes, a British citizen and ex-UBS trader, received a 14-year sentence in 2015.[31]
Reforms
As of November 2014, respective authorities announced remediation programmes aimed at repairing trust in their banking systems and the wider foreign exchange market place. In the United Kingdom, the FCA has stated that the changes to be made at each firm will depend on a number of factors, including the size of the firm, its market share, impact, remedial work already undertaken, and the role the firm plays in the market.[20] The remediation programme was to require firms to review their IT systems in relation to their spot FX business, as the banks relied on legacy technologies that allow for the existence of dark-data silos within which manipulation is able to occur unnoticed by compliance systems.[32]
In Switzerland, the Swiss Financial Market Supervisory Authority announced in December 2014, that for a period of two years UBS would be limited to a maximum annual variable compensation to 200% of the basic salary for foreign exchange and precious metals employees globally. UBS was instructed to automate at least 95% of its global foreign exchange trading, while effective measures must be taken to manage conflicts of interest with a particular focus on organisational separation of client and proprietary trading.[33]
As of May 2015, the window in which the daily 4pm fix is calculated was extended to five minutes as recommended by the Financial Stability Board, a watchdog advising the G20 finance ministers and the Bank for International Settlements tried to get banks to agree a unified code of conduct.[2]
See also
References
- ^ Vaughan, Liam; Finch, Gavin & Choudhury, Ambereen (12 June 2013). "Traders Said to Rig Currency Rates to Profit Off Clients". Bloomberg News. Retrieved 21 January 2014.
- ^ a b "How the forex scandal happened". BBC News. 20 May 2015. Retrieved 5 March 2022.
- ^ McCoy, Kevin (12 November 2014). "Forex traders plotted strategy in secret chats". USA Today. Retrieved 13 November 2014.
- ^ "FCA Final Notice 2014: JPMorgan Chase Bank N.A." Financial Conduct Authority. Retrieved 13 November 2014.
- ^ Vaughan, Liam; Finch, Gavin & Ivry, Bob (19 December 2013). "Secret Currency Traders' Club Devised Biggest Market's Rates". Bloomberg News. Retrieved 3 February 2014.
- ^ Martin, Katie & Enrich, David (19 December 2013). "Forex Traders Said to Have Colluded in Effort to Profit". Wall Street Journal. Retrieved 3 February 2014.
- ^ a b "Forex Chatrooms Show Traders Shared Order, Price Details: Report". NDTV Profit. Reuters. 19 June 2014. Retrieved 1 July 2014.
- ^ Enrich, David & Martin, Katie (1 November 2013). "Currency Probe Widens as Major Banks Suspend Traders". Wall Street Journal. Retrieved 3 February 2014.
- ^ a b Schäfer, Daniel; Ross, Alice & Strauss, Delphine (12 November 2013). "Foreign exchange: The big fix". Financial Times. Retrieved 3 February 2014.
- ^ Sebag, Gaspard & White, Aoife (19 December 2013). "Banks Said to Snitch on FX Rivals in Race to Avoid Fines". Bloomberg News. Retrieved 21 January 2014.
- ^ Ross, Alice; Schäfer, Daniel & Chon, Gina (15 January 2014). "Deutsche Bank suspends traders amid global forex probe". Financial Times. Retrieved 3 February 2014.
- ^ Comfort, Nicholas & Matussek, Karin (30 January 2014). "Deutsche Bank Said to Suspend Moraiz in Currency Probe". Bloomberg News. Retrieved 3 February 2014.
- ^ Schäfer, Daniel; Jenkins, Patrick; Mackenzie, Mike; Scannell, Kara; Barker, Alex; Hall, Camilla; Binham, Caroline & Strauss, Delphine (16 February 2014). "Forex in the spotlight". Financial Times. Retrieved 18 February 2014.
- ^ Bases, Daniel (10 January 2014). "Citi's European spot forex head trader Ramchandani out amid probe". Reuters. Retrieved 3 February 2014.
- ^ McGeever, Jamie (15 January 2014). "Deutsche Bank, Citi feel the heat of widening FX investigation". Reuters. Retrieved 28 July 2016.
- ^ Mathiason, Nick (4 December 2014). "New banking scandal could cost savers billions". London: The Bureau of Investigative Journalism. Archived from the original on 24 May 2015. Retrieved 23 May 2015.
- ^ "Five Banks To Plead Guilty To Global Currency Manipulation". Retrieved 8 June 2015.
- ^ "CFTC Orders Five Banks to Pay over $1.4 Billion in Penalties for Attempted Manipulation of Foreign Exchange Benchmark Rates" (Press release). Commodity Futures Trading Commission. 12 November 2014. PR7056-14. Archived from the original on 13 November 2014. Retrieved 9 June 2020.
- ^ "Five Major Banks Agree to Parent-Level Guilty Pleas".
- ^ a b c "FCA fines five banks £1.1 billion for FX failings and announces industry-wide remediation programme" (Press release). Financial Conduct Authority. 12 November 2014.
- ^ "Federal Reserve announces fines totaling more than $1.8 billion against six major banking organizations for their unsafe and unsound practices in the foreign exchange (FX) markets".
- ^ swissinfo.ch, Matthew. "UBS bears brunt of forex rigging fines - SWI swissinfo.ch". Retrieved 8 June 2015.
- ^ "OCC Fines Three Banks $950 Million for FX Trading Improprieties". www.occ.gov. 12 November 2014. Retrieved 14 April 2018.
- ^ "NYDFS Announces Barclays To Pay $2.4 Billion, Terminate Employees For Conspiring To Manipulate Spot FX Trading Market" (Press release). New York State Department of Financial Services. 20 May 2015. 1505201. Archived from the original on 24 May 2015. Retrieved 9 June 2020.
- ^ "FCA fines Barclays £284,432,000 for forex failings". 20 May 2015.
- ^ a b "NYDFS Announces Barclays to Pay Additional $150 Million Penalty" (Press release). New York State Department of Financial Services. 18 November 2015. 1511181. Archived from the original on 18 March 2016. Retrieved 9 June 2020.
- ^ a b "CFTC Orders Five Banks to Pay over $1.4 Billion in Penalties for Attempted Manipulation of Foreign Exchange Benchmark Rates". Commodities Futures trading Commission. 12 November 2014. Retrieved 13 November 2014.
- ^ Freifeld, Karen; Slater, Steve & Bart, Katharina (20 May 2015). "Major banks admit guilt in forex probe, fined $6 billion". Reuters. Retrieved 20 May 2015.
- ^ "Record fines for currency market fix". BBC. 20 May 2015. Retrieved 20 May 2015.
- ^ "First arrest made in foreign exchange market rigging investigation". The Guardian. 19 December 2014. Retrieved 3 August 2021.
- ^ Economist, The (4 August 2015). "Sentenced to 14 years' hard LIBOR". The Economist. Retrieved 26 December 2015.
- ^ Howes, Gary (14 November 2014). "Exchange Rate Rigging Allowed to Thrive in 'Dark Data' Blindspots". Pound Sterling Live. Retrieved 22 December 2014.
- ^ "FINMA sanctions foreign exchange manipulation at UBS". Swiss Financial Market Supervisory Authority. 11 December 2014. Archived from the original on 15 November 2014. Retrieved 22 November 2014.
External links
- Bank of America
- "Consent Order for Civil Money Penalty" (PDF). In the Matter of: Bank of America N.A. United States Office of the Comptroller of the Currency. 11 November 2014.
- "Order to Cease and Desist" (PDF). In the Matter of: Bank of America Corporation. United States Federal Reserve. 20 May 2015.
- Barclays
- "Order Instituting Proceedings" (PDF). In the Matter of: Barclays Bank Plc. United States Commodity Futures Trading Commission. 20 November 2015.
- "Consent Order" (PDF). In the Matter of: Barclays Bank Plc. New York State Department of Financial Services. 20 May 2015. Archived from the original (PDF) on 16 November 2017. Retrieved 21 May 2015.
- "FCA Final Notice 2015: Barclays Bank Plc". United Kingdom Financial Conduct Authority. 20 May 2015.
- "Plea agreement". United States of America v. Barclay Plc. United States Department of Justice. 20 May 2015.
- "Order to Cease and Desist" (PDF). In the Matter of: Barclays Bank Plc. United States Federal Reserve. 20 May 2015.
- Citigroup
- "Order Instituting Proceedings" (PDF). In the Matter of: Citibank N.A. United States Commodity Futures Trading Commission. 11 November 2014.
- "Consent Order for Civil Money Penalty" (PDF). In the Matter of: Citibank N.A. United States Office of the Comptroller of the Currency. 11 November 2014.
- "FCA Final Notice 2014: Citibank N.A." United Kingdom Financial Conduct Authority. 12 November 2014.
- "Plea agreement". United States of America v. Citicorp. United States Department of Justice. 20 May 2015.
- "Order to Cease and Desist" (PDF). In the Matter of: Citigroup Inc. United States Federal Reserve. 20 May 2015.
- HSBC
- "Order Instituting Proceedings" (PDF). In the Matter of: HSBC Bank Plc. United States Commodity Futures Trading Commission. 11 November 2014.
- "FCA Final Notice 2014: HSBC Bank Plc". United Kingdom Financial Conduct Authority. 12 November 2014.
- JPMorgan
- "Order Instituting Proceedings" (PDF). In the Matter of: JPMorgan Chase Bank N.A. United States Commodity Futures Trading Commission. 11 November 2014.
- "Consent Order for Civil Money Penalty" (PDF). In the Matter of: JPMorgan Chase Bank, N.A. United States Office of the Comptroller of the Currency. 11 November 2014.
- "FCA Final Notice 2014: JPMorgan Chase Bank N.A." United Kingdom Financial Conduct Authority. 12 November 2014.
- "Plea agreement". United States of America v. JPMorgan Chase & Co. United States Department of Justice. 20 May 2015.
- "Order to Cease and Desist" (PDF). In the Matter of: JPMorgan Chase & Co. United States Federal Reserve. 20 May 2015..
- RBS
- "Order Instituting Proceedings" (PDF). In the matter of: Royal Bank of Scotland Plc. United States Commodity Futures Trading Commission. 11 November 2014.
- "FCA Final Notice 2014: The Royal Bank of Scotland Plc". United Kingdom Financial Conduct Authority. 12 November 2014.
- "Plea agreement". United States of America v. Royal Bank of Scotland Plc. United States Department of Justice. 20 May 2015.
- "Order to Cease and Desist" (PDF). In the Matter of: The Royal Bank of Scotland Plc. United States Federal Reserve. 20 May 2015.
- UBS
- "Order Instituting Proceedings" (PDF). In the Matter of: UBS AG. United States Commodity Futures Trading Commission. 11 November 2014..
- "FCA Final Notice 2014: UBS AG". United Kingdom Financial Conduct Authority. 12 November 2014.
- "FINMA Summary Report UBS Foreign Exchange" (PDF). Swiss Financial Market Supervisory Authority. 12 November 2014. Archived from the original (PDF) on 30 November 2014. Retrieved 14 November 2014.
- "Plea agreement". United States of America v. UBS AG. United States Department of Justice. 20 May 2015.
- "Order to Cease and Desist" (PDF). In the Matter of: UBS AG. United States Federal Reserve. 20 May 2015.
- Government
- "Bank of England Foreign Exchange Market Investigation" (PDF). Bank of England. 12 November 2014. Archived from the original (PDF) on 17 March 2017. Retrieved 14 November 2014..