Five banks have been collectively fined £2bn by UK and US regulators for failing to stop traders from trying to manipulate the foreign exchange market, in what constitutes the first settlement in a global investigation and the largest-ever imposed by the FCA.
HSBC, Royal Bank of Scotland, Swiss bank UBS and US banks JP Morgan Chase and Citibank have all been penalised, while Barclays continues to be investigated.
Linklaters advised RBS on the FCA investigation while Clifford Chance is advising Barclays but did not confirm which partners were instructed.
CC previously took a leading role advising its longstanding client Barclays in a case brought by Guardian Care Homes Group over alleged mis-selling of derivatives and alleged LIBOR manipulation. The bank said in a statement today that it ‘has engaged constructively with its regulators’ but, ‘after discussions with other regulators and authorities’, it had concluded ‘to seek a more general coordinated settlement.’
The current scandal relates to whether traders colluded to manipulate the estimated $5.3trn a day foreign exchange market (forex). Over a period spanning from January 2008 and October 2013, ineffective controls at the banks allowed ‘G10 spot’ FX traders to put their respective banks interests ahead of their clients, other market participants and the wider UK financial system. Consequently such failings enabled traders to behave ‘unacceptably’, sharing information about clients’ activities and colluding with traders at other banks to manipulate currency rates.
On the news, RPC banking disputes partner Simon Hart told Legal Business: ‘Now the regulatory piece is complete, claimants are expected to use that in considering their next move. Forex has been around for some time but the general mood has been to hold fire for these regulatory findings and use some of that as a springboard to frame their claims. There are also competition angles to this which is still ongoing and that may give rise to potential claims.’
He added: ‘Any accusation that the FCA is watery in its approach is firmly in the past. They’ve been showing a tougher approach for some time.’
The FCA said in addition to taking enforcement action against and investigating the six banks where it found ‘the worst misconduct’, it is launching an industry-wide remediation programme to ensure firms address the ‘root causes’ of these failings and drive up standards across the market. This includes requiring senior management at firms to take responsibility for delivering the necessary changes and attest that this work has been completed.
FCA’s director of enforcement and financial crime Tracey McDermott, who led the investigation, said: ‘Firms could have been in no doubt, especially after Libor, that failing to take steps to tackle the consequences of a free for all culture on their trading floors was unacceptable. This is not about having armies of compliance staff ticking boxes. It is about firms understanding, and managing, the risks their conduct might pose to markets. Where problems are identified we expect firms to deal with those quickly, decisively and effectively and to make sure they apply the lessons across their business. If they fail to do so they will continue to face significant regulatory and reputational costs.’
The FCA’s conclusion of illegal activity could now potentially generate forex-related claims in the UK that are predicted to significantly outweigh those relating to Libor-rigging.
Such movement is already well underway in the US where a class action has been filed by over a dozen investors, including several large US pension funds who signed up to an antitrust lawsuit in the Southern District of New York in November last year.
That action listed Barclays, Citigroup, Citibank, Credit Suisse, Deutsche Bank, JPMorgan Chase, The Royal Bank of Scotland, UBS, Bank of America, BNP Paribas, Goldman Sachs, HSBC and Morgan Stanley as defendants, and gifted a raft of firms including Allen & Overy with heavyweight instructions.
sarah.downey@legalease.co.uk