Big Banks Fined by EU for Foreign-Exchange Market Misconduct

Source: WSJ | Author: Patricia Kowsmann + Margot Patrick

Bankers used chat rooms with colorful names such as ‘Three Way Banana Split’ and ‘Semi Grumpy Old Men’ to exchange sensitive information

European Union authorities on Thursday fined five global banks a total of €1.07 billion ($1.2 billion) for manipulating the foreign-currency market by exchanging sensitive information and trading plans through online chat rooms to gain financially.

Citigroup Inc., C +2.09% JPMorgan Chase & Co., Barclays BCS +0.43% PLC, Royal Bank of Scotland Group RBS 0.50% PLC and Japan’s MUFG Bank Ltd. are paying between €69.7 million ($78.1 million) and €310.7 million under settlements with the European Commission.  UBS Group AG, which in 2013 revealed the existence of two cartels formed by the banks, has received full immunity and avoided €285 million in fines, the commission said.

Citigroup, which is paying the top fine of €310.7 million, and Barclays declined to comment.  An RBS spokesman said the fine is a reminder of how badly the bank “lost its way” in the past.

A JPMorgan spokesman said one former employee was involved in the case, adding “we have since made significant control improvements.”  A spokeswoman for MUFG said it had taken “a number of measures to prevent this occurring again.”

The manipulation involved 11 currencies, including the euro, U.S. dollar and British pound, and took place between 2007 and 2013.  It involved foreign exchange spot order transactions, which are executed on the same day at the prevailing exchange rate.  The commission said individual traders at the five banks exchanged information in a way that allowed them to coordinate whether and when to sell and buy the currencies for their advantage.

Most of the traders knew each other outside work, the commission said, including from commuting by train into London.  The chat rooms, with colorful names such as “Three Way Banana Split” and “Semi Grumpy Old Men,” were kept open on the traders’ screens all day, and they would post regular updates on their trading activities, the commission said.

The European Commission is one of the last global authorities to impose a large fine over behavior in foreign exchange trading markets that first came to light in 2013 and takes the total tab paid by banks over $11 billion.  The commission opened an investigation that year but its findings come years after banks settled similar allegations in the U.S. and U.K.  The commission said it hasn’t completed its work, though.

“The commission will continue pursuing other ongoing procedures concerning past conduct in the Forex spot trading market,” it said.  HSBC Holdings PLC earlier this year said it also had been asked by the European Commission for information around potential coordination in foreign-exchange options trading.

The European Commission has a separate open probe into possible collusion among global banks to manipulate markets of U.S. dollar-denominated supra-sovereign, sovereign and so-called SSA bonds, which are issued by entities like the World Bank and European government agencies.

Online chat rooms, in which traders often showed little interest in covering up their activities, turned into a treasure trove of evidence for investigators.

In 2015, when Barclays, Citigroup, JPMorgan and Royal Bank of Scotland settled a similar forex manipulation case in the U.S. paying over $5 billion in fines, documents showed much of the information exchanged among traders happened in an electronic chat room known by participants as “The Cartel” or “The Mafia.”

Connecticut-based law firm Scott+Scott LLP, which helped secure $2.3 billion in settlements for clients in the U.S. case, said it would begin recovery action in Europe on behalf of non-U.S. pension funds, asset managers and companies.

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