Banks fined billions after market manipulations

The financial market in the UK is often the subject of bad press. Newspapers and media outlets on every part of the political spectrum criticise bankers for their bonuses, as well as blaming them for the financial crash of 2007/8. However, if banks want to avoid this negative attention it is vital that they abide by all the rules and regulations of their sector.

Unfortunately, the latest news from the banking industry is not good. A year-long investigation into global financial markets has found that employees from several major banks have been attempting to rig foreign exchange markets in order to make themselves more money. This is highly illegal, and has lead to the levying of some hefty fines.

According to authorities, including the UK's Financial Conduct Authority (FCA), dozens of traders across five banks have been behaving unacceptably and manipulating G10 spot FX currency rates. This behaviour was ongoing from 2008 until October 2013.

This occurred at some of the largest banks in the world. The five organisations that were fined by the FCA as a result of the investigation are HSBC Holdings Plc, Royal Bank of Scotland Group Plc, JPMorgan Chase & Co, Citigroup Inc and UBS AG. A sixth bank, Bank of America Corp, was penalised by a different authority.

In a statement, the FCA said: "Ineffective controls at the banks allowed G10 spot FX traders to put their banks’ interests ahead of those of their clients, other market participants and the wider UK financial system." It accused the banks of failing to manage "obvious risks around confidentiality, conflicts of interest and trading conduct".

The lax regulations at these banks allowed traders to get away with a number of illegal financial activities. Many of these involved working with colleagues from other banks to manipulate foreign exchange rates, in order to make a profit for their organisations.

According to the FCA statement: "They shared information about clients’ activities which they had been trusted to keep confidential and attempted to manipulate G10 spot FX currency rates, including in collusion with traders at other firms, in a way that could disadvantage those clients and the market."

The traders used online chatrooms to conduct these illicit deals. In order to preserve their secrecy, they referred to each other – and their clients – by codenames. Some groups of traders were known as “the players”, “the 3 musketeers”, “1 team, 1 dream”, “a co-operative” and “the A-team”.

According to the FCA, the traders joined forces to manipulate fix rates and trigger client “stop loss” orders. They then manipulated exchange rates to ensure that their banks could sell currency to their clients at a higher rate than they had purchased it at. This would lead to guaranteed profits at the expense of clients and the market in general.

As a result, these banks have been heavily penalised. The FCA has issued over £1.1 billion in fines, which is the the biggest penalty in the history of the City of London. It is hoped that this will discourage others from attempting this strategy, cracking down on a largely unregulated financial market.

In total, £1,114,918,000 of fines were imposed. Of this total, HSBC was fined £216,363,000, Royal Bank of Scotland £217,000,000, JPMorgan Chase £222,166,000, Citibank £225,575,000 and UBS £233,814,000.

Martin Wheatley, the FCA's chief executive, justified these huge penalties in a statement. He said: "The FCA does not tolerate conduct which imperils market integrity or the wider UK financial system. Today’s record fines mark the gravity of the failings we found and firms need to take responsibility for putting it right."

Hopefully, the penalties will serve as an effective deterrent in future, putting traders off manipulating the market illegally for quick profits.

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