Global regulators imposed penalties totaling $3.4 billion on five major banks, including UBS, HSBC and Citigroup on Wednesday in a landmark settlement over allegations of price fixing in the foreign exchange market.
Royal Bank of Scotland and JP Morgan were also fined for attempting to manipulate foreign exchange benchmarks in a year-long probe that has put the largely unregulated $5 trillion-a-day market on a tighter leash, with dozens of dealers suspended or fired, Reuters reported.
Switzerland's UBS swallowed the biggest penalty, paying $661 million to Britain's Financial Services Authority (FCA) and the US Commodity Futures Trading Commission (CFTC) and ordered by the Swiss regulator FINMA to hand over 134 million Swiss francs.
FINMA also ordered Switzerland's largest bank to automate at least 95 percent of its global foreign exchange trading and limit bonuses for traders of foreign exchange and precious metals, where it said it had also found evidence of serious misconduct, to 200 percent of their base salary for two years.
Regulators found the attempted manipulation of the foreign exchange market had been going on for several years, with the FCA saying the failings occurred between January1, 2008 and October 15, 2013.
Other bank employees who earn more than 200 percent of their base salary in bonuses will have to undergo an approval process.
FINMA has started enforcement proceedings against 11 former and current employees of UBS.
Barclays, a major player in the foreign exchange market, had been expected to be part of the settlement but the FCA said its investigation into the UK bank was continuing.
The UK regulator's first group settlement, worth more than $1.7 billion, eclipses the 460 million pounds ($732.8m) it has so far fined the industry for alleged interest rate manipulation, reflecting increasing political and public demands that banks -- blamed for sparking the 2008 credit crisis -- are held accountable and culpable for misconduct.
The US CFTC fined the five banks more than $1.4 billion for attempted manipulation.
Investigation
The fines follow a year-long investigation by regulators into claims that the foreign exchange market – in which banks and other financial firms buy and sell currencies between one another – was being rigged.
The massive market, in which $5.3 trillion worth of currencies are traded daily, dwarfs the stock and bond markets.
About 40% of the world's dealing is estimated to go through trading rooms in London.
There is no physical forex marketplace and nearly all trading takes place on electronic systems operated by the big banks and other providers.
Balance Sheets
The fines, while adding up to a large sum, are unlikely to seriously impinge on the banks’ balance sheets. Many of the lenders had signaled in recent weeks that a settlement was coming, with several setting aside money for fines and other charges, or revising their third-quarter results to reflect the effect of a potential deal.
Misconduct uncovered in the run-up to the financial crisis and in setting global benchmark interest rates in recent years spurred efforts by regulators to root out improper behavior in other areas of the markets, including currencies.
The settlements announced on Wednesday were the result of months of negotiations with the banks after regulators in Britain, the United States and other countries began investigations last year into the foreign exchange markets.
