Barclays and Royal Bank of Scotland were among a group of six global banks fined almost $6bn (£3.9bn) for rigging the $5.3trn-a-day foreign exchange market.
The settlement with US and UK regulators, which also involved JP Morgan, Citigroup, Bank of America and UBS, means that the scandal has so far cost the global industry about $10bn. The affair follows a series of scandals, including the fixing of benchmark interest rate Libor, that have severely damaged the public’s perception of the banking industry.
Barclays, Citi, JP Morgan, UBS and RBS also all pleaded guilty to a US antitrust violation. Forex traders were said to have come together in chat-rooms with names such as “The Cartel” or the “Bandits’ Club” to organise methods to influence the value of major currencies in the hope of inflating their profits.
“If you ain’t cheating, you ain’t trying,” one Barclays’ trader said in a chatroom.
Anyone from hedge funds betting on the market to a company engaging in a major overseas transaction could have been affected.
“This sort of practice strikes at the heart of business ethics and is yet another blow to the integrity of the banks,” said Mark Taylor, dean of Warwick Business School and a former foreign exchange trader.
“Our pension funds invest billions of pounds in the financial markets and if they are being cheated in this way, it affects every one of us.”
Barclays, which opted out of a mass settlement last year in which six banks agreed to pay a total of £2.6bn, was fined the largest amount, at £1.53bn; that included City watchdog the Financial Conduct Authority’s largest ever penalty of £284.4m.
The FCA said the bank failed “to control business practices in its foreign exchange business in London”, and the issue extended across the spot currency markets, “undermining confidence in the UK financial system and putting its integrity at risk”.
Georgina Philippou, the FCA’s acting director of enforcement added: “Instead of addressing the obvious risks associated with its business, Barclays allowed a culture to develop which put the firm’s interests ahead of those of its clients.”
The bank, which had set aside about £2bn to cover its bill, also settled with the US Commodity Futures Trading Commission, the New York State Department of Financial Services (DFS), the US Department of Justice and the the US Federal Reserve.
The DFS’s Benjamin Lawsky said: “[Barclays employees] engaged in a brazen ‘heads I win, tails you lose’ scheme to rip off their clients.” Mr Lawsky, who has a reputation as a hard-line regulator, also announced he is stepping down in June to start his own legal firm.
RBS took part in November’s settlement but said it would pay another $669m to the DoJ and Federal Reserve to resolve the investigations.
Banks have suspended, put on leave or fired a number of staff for their involvement in market manipulation. Barclays sacked another eight employees as part of its settlement.
Jake Robbins, at Premier Asset Management, said: “Since the financial crisis, closer regulatory scrutiny has led to a string of fines in the banking sector and has largely been accepted as an ongoing increased cost of doing business.
“While each time banks incur fines for bad behaviour it clearly impacts their profits, fines are typically very small compared to annual earnings, so ultimately have little impact on their overall business, valuation or prospects.”
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