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Five megabanks learned to ‘Game the System,’ Feds say

CFTC-Money-Banks-Foreign-ExchangeBy Jenna Greene, From The National Law Journal

Five megabanks agreed to pay more than $4.2 billion in penalties to settle charges by U.S. and European regulators of attempting to manipulate global foreign-exchange benchmark rates.

Characterizing the misconduct as “egregious and brazen,” Aitan Goelman, the U.S. Commodity Futures Trading Commission director of enforcement, in a conference call with reporters said the banks “figured out how to game the system, and manipulated it to benefit themselves.”

The banks agreed to pay nearly $1.5 billion to settle CFTC charges, with Citibank N.A. and JPMorgan Chase Bank N.A. paying $310 million each. The Royal Bank of Scotland PLC and UBS A.G. will both pay $290 million and HSBC Bank PLC will pay $275 million.

The banks were also hit with collective penalties of $1.7 billion by the United Kingdom Financial Conduct Authority, and UBS will disgorge $139 million to settle charges by the Swiss Financial Market Authority.

Citibank, JPMorgan and Bank of America Corp. (which was not part of the CFTC deal) also agreed to pay a combined $950 million to settle charges by the Office of the Comptroller of the Currency for failing to identify or prevent employee misconduct related to their foreign-exchange trading business.

According to the CFTC, one of the primary benchmarks that traders attempted to manipulate was the World Markets/Reuters Closing Spot Rates—a one-minute snapshot of the currency market at 4 p.m. London time.

Traders used private chat rooms to communicate and plan their attempts to manipulate the foreign-exchange, or forex, rates, sharing confidential client information and tying transactions to the 4 p.m. “fix,” Goelman said.

UBS was the first to report the misconduct, according to the CFTC order. The banks did not admit or deny wrongdoing, and all are credited with cooperation, though Goelman said, “there are different degrees of cooperation and remediation.” The varying penalties reflected that, as well as the frequency of the misconduct, the role of bank leaders in the conspiracy and the number of people involved, he said.

UBS Group Chief Executive Officer Sergio Ermotti said in a written statement:

Today’s resolutions are an important step in our transformation process and towards closing this industry-wide matter for UBS. We continue to cooperate with related ongoing investigations.

The charges are distinct from a wave of prior CFTC cases against banks, including UBS and Royal Bank of Scotland, for making false submissions to the London Interbank Offered Rate, or LIBOR. The CFTC has imposed more than $1.87 billion penalties for that misconduct.

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