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Forex Manipulation Fines Just The Start Of Liabilities For Banks

Wednesday, 24 December 2014

The Financial Conduct Authority (FCA) recently fined five banks in the UK because of system and control failures in their foreign exchange businesses. The FCA is the financial regulatory body in the UK, which supervises banks to identify risks and encourage healthy competition, providing fair treatment to clients. For the regulator these failures “undermine UK financial system and put its integrity at risk”.

The fines

Citibank, HSBC, JP Morgan, Royal Bank of Scotland and UBS will pay fines totaling £1.1bn. This is a record figure in the UK and reflects the frustration of the regulators with the banks’ practices. Barclays, the first bank to be fined for rigging Libor in 2012, was not mentioned but the bank is still negotiating with the authorities and is expected to push for a separate settlement.

Martin Wheatley, chief executive of the FCA said that the, “record fines mark the gravity of the failings we found and firms need to take responsibility for putting it right. They need to make sure their traders do not game the system to boost profits or leave the ethics of their conduct for compliance to worry about.” For Wheatley it is important to restore the public´s trust in financial services to keep London as a strong and competitive financial centre.

Unfinished business for regulators

The fines imposed by the regulators are one answer for the failings of banks in controlling their own trading operations. It has been proven that the banks manipulated forex, moving prices against clients, to obtain profits. This regulators’ achievement is a result of a global effort of 20 authorities, which have been investigating more than 15 banks because of rigging in the forex market. Following a series of banking scandals, it is not clear that the regulators have had their fill; further potential issues exist in gold, swaps and other derivatives markets.

Potential for litigation

Punishment at the hands of the regulators may be just the start of the banks’ financial woes in relation to this scandal. The liability for manipulating profits is unlikely to stop at just the fines. Solicitors have already said that Banks should prepare for clients’ claims. The US court is already facing investor’s damage claims over forex manipulation.

Pension funds, fund managers, foreign property investors and others victims could issue the first lawsuits in the UK soon. To succeed in those actions, it will be important to prove that stakeholders lost money because of banks’ manipulation and that the bank also made profits at their expense. Experts state that it will be much easier to run a case of forex manipulation than it was in the Libor scandal. It is not as hard to prove loss of money in forex cases and the FCA has records proving bankers’ manipulation.

Eyes open

Andrew Tyrie, former president of the Parliamentary Commission on Banking Standards said that “The banks appear not to have redressed the lamentably weak internal controls that the multiple investigations into Libor rigging, (…)”. The result of this scandal is also the suspension of three dozen traders and a significant number of traders leaving their jobs voluntarily.The stock market reflected the result of FCA investigations and banks shares dropped after FCA`s announcement. Considering this widespread investigation, banks will need to open their eyes to manipulation in other markets to prevent misconduct in their business and the liabilities that follow in the fallout.

For specialist advice about making or defending claims related to breaches of financial regulation or recent financial scandals contact Peter Gourri today by email or telephone 0207 611 4848.

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