Settlements nearing in forex manipulation investigation

Article originally appeared on Sky

The City regulator has this week held secret talks with some of the world's biggest banks about a settlement for the manipulation of global foreign exchange markets that could cost the lenders a total of around £2bn in fines.

Sky News can exclusively reveal the Financial Conduct Authority (FCA) scheduled meetings with the banks - which included Britain's Barclays, HSBC and Royal Bank of Scotland - to discuss for the first time the outline terms of a deal that could be announced as soon as November.

According to senior banking sources, the settlements, which would be confirmed simultaneously, could cost in the region of £2bn in total - which would be the UK regulator's biggest-ever series of fines for the same offence.

The banks, which also include Citi, JP Morgan and UBS, would pay different sums, depending on the gravity of their traders' alleged efforts to artificially move foreign currency rates.

However, a person close to the talks said the FCA had informed some of the banks' lawyers that the smallest of the penalties imposed for foreign exchange-rigging were likely easily to outstrip the biggest of the fines it has so far handed out for manipulation of the interbank borrowing rate Libor.

Such an outcome would chime with a warning from Martin Wheatley, the FCA chief executive, in February, when he told MPs that  allegations about collusion to rig prices in the $5.3tn (£3.25tn) spot market were "every bit as bad as they have been with Libor".

The largest fine dished out by the FCA for Libor-rigging to date was £160m paid by UBS in December 2012.

Mr Wheatley attended some of this week's meetings with the banks, a source said.

A number of uncertainties remain about the terms of the foreign exchange-rigging settlements, including the extent to which US-based regulators will be involved.

Another area of doubt concerns the exact scale of the penalties that will be imposed, with one source suggesting that around £2bn in aggregate for the six banks was "a possibility but no more than that".

The final total could vary significantly from that figure, they added.

It also remains unclear whether the banks were served formal warning notices by the FCA this week, although sources confirmed the FCA had agreed with the lenders an eight-week consultation period to try to reach a deal by the end of November.

Bank executives are keen for the FCA and its counterparts across the Atlantic to agree fines on a co-ordinated and fast-tracked basis, although US regulators recently cast doubt on that prospect.

Earlier this week, Andrew Bailey, chief executive of the Prudential Regulation Authority and a deputy governor of the Bank of England, called for overseas watchdogs to consult more closely before imposing penalties on banks because of the overriding need to preserve financial stability.

Banks and the FCA are keen to avoid a repetition of the protracted nature of the Libor settlements, which began in June 2012 with a joint UK and US deal with Barclays.

The British bank avoided the threat of corporate prosecution, but was forced to oust its chairman and chief executive amid widespread condemnation of its employees' behaviour.

The FCA began its probe into foreign exchange markets in October 2013, saying at the time: "We can confirm that we are conducting investigations alongside several other agencies into a number of firms relating to trading on the foreign exchange (forex) market. 

"As part of this we are gathering information from a wide range of sources including market participants. Our investigations are at an early stage and it will be some time before we conclude whether there has been any misconduct which will lead to enforcement action."

Since then, dozens of employees at banks which are being investigated have been dismissed or suspended, while the Serious Fraud Office is also investigating.

Earlier this week, the Treasury announced plans to extend the new regulatory framework for Libor to other benchmarks, including those used to set some foreign exchange rates, in an attempt to clean up the City.

None of the banks or the FCA would comment on Friday.

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