The US Commodity Futures Trading Commission has slapped fines totaling $1.4 billion on five banks for lax controls on their G10 spot foreign exchange trading operations, while UK and Swiss regulators have also punished banks, ending a probe into forex benchmark-rigging that is likely to put more pressure on firms to tighten compliance.

The US Commodity Futures Trading Commission has slapped fines totaling $1.4 billion on five banks for lax controls on their foreign exchange trading operations, while UK and Swiss regulators have also punished banks, ending a probe into forex benchmark-rigging that is likely to put more pressure on firms to tighten compliance.

The CFTC imposed the fines on the following banks: $310 million each for Citibank and JP Morgan, $290 million each for RBS and UBS, and $275 million for HSBC. There had been speculation in recent days that an announcement was imminent.

UK and Swiss regulators also investigating the issue in the world’s $5.3 trillion-a-day forex market have also taken action. FINMA, the Swiss regulator, has disgorged SFr134 million ($138 million) from UBS; and in the UK the Financial Conduct Authority has imposed a total financial penalty of $1.7 billion on the banks, the FCA said in its statement today.

The FCA said it is still investigating Barclays over the forex manipulation issue but made no further comments about that UK-listed bank. That bank has already been one of the firms punished by regulators for manipulating the interbank interest rate benchmark market.

Barclays said it has "engaged constructively with its regulators" to consider whether to join today's settlement, but after talks, it said "we have concluded that it is in the interests of the company to seek a more general coordinated settlement". "We will continue to engage with these authorities, including the FCA and CFTC, with the objective of bringing this to resolution in due course," it said.

It had been claimed that bank dealers had shared information through instant messaging and other channels and used client orders to shift currency benchmark rates, thereby profiting themselves and their institutions. Benchmark forex rates are designed as references for a range of financial products, as is the case with interest rate benchmarks that are used for products such as mortgages and savings rates.

In a statement, the CFTC said: “The orders also require the banks to cease and desist from further violations, and take specified steps to implement and strengthen their internal controls and procedures, including the supervision of their FX traders, to ensure the integrity of their participation in the fixing of foreign exchange benchmark rates and internal and external communications by traders.”

The CFTC added that the relevant period of conduct varies across the banks, with conduct commencing for certain banks in 2009, and for each bank, continuing into 2012.

According to the CFTC, one of the primary benchmarks that the FX traders attempted to manipulate was the World Markets/Reuters Closing Spot Rates (WM/R Rates), the most widely referenced foreign exchange benchmark rate both in the US and globally.

The CFTC said that certain foreign exchange traders at the banks coordinated their trading with traders at other banks and used private chat rooms to manipulate the currency benchmark rates.

“The Orders also find that the Banks failed to adequately assess the risks associated with their FX traders participating in the fixing of certain FX benchmark rates and lacked adequate internal controls in order to prevent improper communications by traders. In addition, the Banks lacked sufficient policies, procedures and training specifically governing participation in trading around the FX benchmarks rates; and had inadequate policies pertaining to, or sufficient oversight of, their FX traders’ use of chat rooms or other electronic messaging,” the CFTC said.

The regulator also highlighted how some of this conduct occurred during the same period that the banks were being investigated for the London Interbank Offered Rate and other interest rate benchmarks.

“The setting of a benchmark rate is not simply another opportunity for banks to earn a profit. Countless individuals and companies around the world rely on these rates to settle financial contracts, and this reliance is premised on faith in the fundamental integrity of these benchmarks. The market only works if people have confidence that the process of setting these benchmarks is fair, not corrupted by manipulation by some of the biggest banks in the world,” said Aitan Goelman, the CFTC’s director of enforcement.

Response

Switzerland's largest bank said in a statement it has reached resolutions with the Swiss Financial Market Supervisory Authority, the US Commodity Futures Trading Commission and the UK Financial Conduct Authority over the forex-rigging saga.

"Today's resolutions are an important step in our transformation process and towards closing this industry-wide matter for UBS. We continue to cooperate with related ongoing investigations," Sergio Ermotti, chief executive at UBS, said in a statement today.

UBS confirmed that FINMA has ordered it to pay SFr134 million in confiscation of costs avoided and profits. In addition, UBS said it has agreed to pay $290 million fines to the CFTC in connection with settlements agreed to by a number of banks. UBS also agreed a £234 million fine with the FCA in connection with settlements agreed to by a number of banks.

"UBS provisioned fully for these charges in the third quarter of 2014," it said.

Other banks, such as HSBC, have already disclosed provisions they are making in expectation of a settlement over the issue.

Citi said in a statement it had already made changes to its systems, controls and monitoring processes to better guard against improper behavior.  

“While today’s settlements resolve significant investigations into Citi’s foreign exchange business, as we have previously disclosed, several additional regulatory agencies and enforcement bodies are conducting investigations and making inquiries into this business. We continue to fully cooperate with these investigations and inquiries,” Citi said.

JP Morgan said in a statement the trader conduct described in the settlements was “unacceptable”.

"In addition to making significant improvements to our systems and controls, we have spent a lot of time reinforcing the high standards of conduct expected of our people. Although the settlements acknowledge our progress, further training and enhancements are ongoing and will remain a priority," the statement said.