Law360 (January 29, 2019, 9:05 PM EST) — New York’s banking regulator said Tuesday that Standard Chartered Bank will pay $40 million to resolve claims that it participated in a scheme to rig foreign exchange benchmark rates, marking the last settlement to come from a long-standing investigation into misconduct and manipulation in the foreign exchange market.
The British multinational bank violated banking laws through the “unsafe, unsound and improper conduct” of traders in its foreign exchange business, New York’s banking regulator says. (AP)
The New York State Department of Financial Services said in a consent order that Standard Chartered violated state banking laws through the “unsafe, unsound and improper conduct” of traders in its foreign exchange business who used code names and chatrooms to share customer information and coordinate trading.
“The inappropriate conduct was designed to improve the bank’s profits, and [the traders’] own compensation, at the expense of the bank’s customers, competitors and the market as a whole,” the DFS said.
The agency’s investigation, which has produced more than $3 billion in settlements with other big banks like Credit Suisse, Goldman Sachs and Deutsche Bank, uncovered that between 2007 and 2013, Standard Chartered traders communicated via chatrooms, emails, phone calls and in-person meetings to rig transactions in the foreign exchange market.
In one such chatroom, dubbed “Old Gits” by the individuals who used it, Standard Chartered traders would share confidential information, coordinate trading and engage in other practices designed to impact foreign exchange prices, the DFS said. A Standard Chartered trader once referred to the group as a “mafia,” while a trader from a different global bank described it to a new participant as a “den of thieves,” according to the consent order.
Members of the chatroom vetted newer traders before adding them to the group and arranged trades intended to push or pull the price of a targeted currency in a desired direction, the DFS said.
“Participants also used Old Gits to share information to attempt to coordinate spreads quoted to customers,” the order said. “This anti-competitive conduct potentially advantaged the traders and their respective banks but clearly could disadvantage customers.”
The traders took steps to conceal this misconduct from Standard Chartered’s compliance function and from regulators, like using code names for customers whose information was being passed around, but otherwise openly acknowledged in chatrooms their ability to manipulate the market, the state regulator said.
The DFS found fault not only with the actions of the traders, but with the bank as a whole for failing to adequately supervise its foreign exchange business and ensure compliance with banking laws and regulations. Standard Chartered had few policies or training programs in place to guide the foreign exchange desk and inadequate surveillance of its trading activity, the agency said.
In addition to paying a $40 million civil penalty, the bank was ordered to provide the DFS with enhanced written internal controls and compliance programs and a written plan for improving its compliance risk management program.
According to the DFS, Standard Chartered cooperated fully with the investigation and has already terminated any employees found to have engaged in the misconduct. The London-based bank did not immediately respond to a request for comment on Tuesday.
Tuesday’s order may be the final enforcement action for DFS Superintendent Maria T. Vullo, who announced last month that she would be stepping down at the end of January.
“The integrity of the global financial system is compromised when the hunger for profit leads bankers and traders to turn a blind eye to the kind of illicit activities uncovered by DFS’ broad investigation,” Superintendent Vullo said in an announcement. “DFS appreciates Standard Chartered’s cooperation in this matter and the bank’s acknowledgment of its critical obligation to ensure that its business is conducted lawfully.”
Government investigations into the foreign exchange trading activities of big banks have also produced $2.3 billion worth of settlements in parallel investor class actions. The investors were represented in part by Scott & Scott Attorneys at Law LLP, whose managing partner, David Scott, told Law360 on Tuesday that his firm was pleased with news of the fine against Standard Chartered.
“We hope that these fines, along with the approximately $2.3 billion that banks have paid in our class settlements, help to deter this type of wrongful behavior in financial markets,” Scott said.
–Editing by Janice Carter Brown.