Amid the widespread global investigation by U.S., British and Swiss regulators into alleged foreign exchange (FX) market manipulation, five major global banks have been fined $3.4 billion for such manipulation. Manipulation of currency rates by major financial institutions triggered thorough investigations by regulatory bodies across Europe, Asia and America.
On Wednesday, the U.S. Commodity Futures Trading Commission (CFTC), the U.K. Financial Conduct Authority (FCA) and the Swiss Financial Market Supervisory Authority entered into settlement agreements with Citigroup Inc. (C), JPMorgan Chase & Co. (JPM), The Royal Bank of Scotland Group plc (RBS), HSBC Holdings plc (HSBC) and UBS AG (UBS) totaling around $3.4 billion. However, an investigation by the FCA is continuing on Barclays PLC (BCS).
The CFTC settlement summed to $1.4 billion, while the FCA will receive £1.1 billion ($1.75 billion). Further, the Office of the Comptroller of the Currency (OCC) charged $950 million against Bank of America Corp. (BAC), Citigroup and JPMorgan for malpractices related to their foreign exchange trading activities. Notably, Citigroup and JPMorgan have been fined $350 million each, while BofA will pay $250 million.
Separately, UBS has been charged with CHF 134 million ($139 million) by the Swiss markets regulator – FINMA for settling a related probe.
Currency market rigging is not new to the banking industry. Earlier, some big banks were penalized for rigging the London interbank offered rate (LIBOR), a benchmark for credit card rates and other loans.
The recent settlements marked the latest in the series of fines against banks. Globally, banks have faced more than $200 billion in penalties in recent years following investigations into malpractices including interest-rate manipulation, violation of agreements and inadequate selling of a number of financial products.
The current probe primarily hinges upon the suspicion that the traders at the banks manipulated the foreign exchange rates, which served as benchmarks for huge amount of investments. The traders allegedly colluded to manipulate prices, and influenced customers by maneuvering their bets based on the orders of the clients between Jan 1, 2008 and Oct 15, 2013.
Regulators across the globe dealt seriously with the allegations of banks having manipulated WM/Reuters rates used for determining foreign exchange prices. WM/Reuters rates are published hourly for 160 currencies and half-hourly for the 21 most-traded ones. Hence, it is a widely accepted standard, the rigging of which necessarily undermined the importance of the rates and gave rise to negative financial consequences.
Therefore, burdened under the pressure of such investigations, banks have terminated a number of traders along with the closure of electronic chat rooms – the mode of communication between various banks. Moreover, such probes are negatively impacting the markets as evident from the downturn in foreign exchange trading volumes.
Earlier this month, BofA also revealed $400 million of FX-related charges owing to its engagement in advance talks with the regulators to settle the allegations. The additional charge increased the company’s third-quarter 2014 net loss to $232 million or 4 cents per share from $70 million or 1 cent per share, as reported on Oct 15. Last month, following the ongoing regulatory inquiries and investigations, Citigroup also restated its third-quarter 2014 earnings, giving effect to additional legal charges worth $600 million.
Regulatory authorities are investigating scandals further related to the heightening foreign exchange rate fixing and are determined to put forward a landmark judgment to terminate such practices in the future, bring justice to the sufferers and punish the wrongdoers. While the settlement of such issues will put to rest a long-drawn investigation and bring a reprieve to the banks, this comes as a huge blow to their financials.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
To read this article on Zacks.com click here.
Get all Zacks Research Reports and be alerted to fast-breaking buy and sell opportunities every trading day.
Be the first to comment