Financial Times by Martin Arnold
HSBC has been fined $175m by the US Federal Reserve for “unsafe and unsound practices” in its foreign exchange trading business.
The Fed said it had fined the UK-listed bank for failing to stop its traders from misusing confidential customer information and for telling competitors about their own trading positions.
The fine comes only days after the trial of Mark Johnson, former global head of forex cash trading at HSBC, kicked off on Monday in a New York court. He faces charges of exploiting confidential information from a client to front-run a $3.5bn currency deal.
The Fed said: “The firm failed to detect and address its traders misusing confidential customer information, as well as using electronic chat rooms to communicate with competitors about their trading positions.
“The board’s order requires HSBC to improve its controls and compliance risk management concerning the firm’s FX trading,” it added.
The Fed also said it had ordered the bank to improve controls and compliance risk management around its FX trading. The lender must implement measures to address its “unsafe and unsound practices” and carry out “an enhanced written internal audit programme” of its FX trading operations.
It also comes as Mark Tucker prepares to take over from Douglas Flint as chairman of HSBC next week, having joined the board of Europe’s biggest bank by assets a month ago.
One of the biggest issues he faces is whether the US Department of Justice will decide to extend a deferred prosecution agreement with HSBC when it expires early next year. The DPA was agreed as part of the bank’s $1.9bn settlement of money laundering and sanction breaches in 2012.
Mr Johnson, a British citizen, was arrested at JFK airport in New York last year. He is the first banker to go on trial on charges that stem from a US probe into currency manipulation.
Cairn Energy, a UK oil producer, hired HSBC to convert $3.5bn of proceeds from an asset sale in India from US dollars into sterling. Prosecutors allege Mr Johnson orchestrated a plan to capitalise on a rise in the currency by buying sterling ahead of the transaction, netting the bank millions of dollars in 2011.
Stuart Scott, the former head of European currency trading at HSBC, was arrested this summer in the UK at the behest of US authorities, who have charged him with forex-rigging along with Mr Johnson. Mr Scott is contesting his extradition to the US.
Mr Scott left HSBC just weeks after the bank paid a $618m fine to US, UK and Swiss regulators for its involvement in foreign exchange rate rigging. Both Mr Johnson and Mr Scott deny wrongdoing.
The bank is facing a separate legal battle in the UK with ECU Group, a currency investment firm, over three forex orders, each worth more than $100m. ECU alleges the bank ripped it off by front-running its orders.
Separately, Deutsche Bank has agreed to pay $190m to settle a US class-action lawsuit by customers who alleged that the German bank had caused them losses by manipulating the foreign exchange market. Scott+Scott, the law firm leading the class action, said its class-action lawsuit had now collected more than $2.3bn from 15 banks.