Foreign exchange fixing scandal sees bank fines soar to a record £1.5bn

Britain’s chief City watchdog has levied a record £1.5bn in fines during 2014

James Moore
Friday 26 December 2014 22:48
The lion’s share of the £1.5bn in fines levied on the financial sector during 2014 was accounted for by the involvement of five banks in the rigging of London’s £3.5trn a day foreign exchange markets
The lion’s share of the £1.5bn in fines levied on the financial sector during 2014 was accounted for by the involvement of five banks in the rigging of London’s £3.5trn a day foreign exchange markets

The figure is almost three times last year’s total of £474.3m, itself an all-time high for a financial regulator in the UK.

The lion’s share of the record pot was accounted for by the £1.13bn collectively levied against five banks for their traders’ involvement in the rigging of London’s £3.5trn a day foreign exchange markets.

While American watchdogs handed out the biggest penalties, each of the individual UK fines imposed on Royal Bank of Scotland, HSBC, Citibank, JP Morgan and UBS were records for the Financial Conduct Authority and its predecessor, the Financial Services Authority.

Barclays is expected to face a substantial penalty next year, although it opted out of the FCA’s mass Forex settlement in an attempt to secure a wider deal with overseas regulators.

The Forex fines comfortably eclipsed the penalties handed out a couple of years ago for banks’ involvement in the Libor interest rate rigging scandal.

But even though the FCA’s penalties commonly lag behind those imposed by watchdogs across the Atlantic, there has still been a step change in the level of fining in recent years.

As recently as 2011 the total of all fines levied by the Financial Services Authority, the predecessor to the FCA, was just £66.1m. This year the FCA had eclipsed that figure by 12 February, before any Forex or Libor-related fines had been imposed.

However, even that total dwarfs the tally for 2007, the year the financial crisis started to grip Britain. That year the FSA imposed a total of just £5.4m in fines, including just one seven-figure penalty.

This year there were 17 individual penalties that exceeded that total alone, and 23 seven-figure fines.

Simon Morris, a City regulation specialist at the law firm CMS Cameron McKenna, said that despite the disparity in UK and US fines, the FCA’s total still approaches that of the Securities & Exchange Commission, America’s biggest financial watchdog.

But he does not expect a repeat next year: “An annual fine harvest of £1.5bn is getting close to the SEC’s total of over $3bn (£1.9bn) – but there the resemblance ends. The year 2014 has been an unusual weather pattern for the FCA with a sequence of enormous fines for major banks misbehaving in globally important markets.

“It’s clearly a blip – last year was far lower, and next year will probably be well down. And most important, the FCA isn’t in a race with the SEC and doesn’t see itself as an enforcement-led regulator.”

A spokesperson for the FCA said: “The fines and other penalties we have seen this year demonstrate yet again the consequences of individuals failing put consumers and the integrity of the market at the heart of their activities.”

David Hillman, who campaigns for a tax on banks’ financial transactions, the so-called Robin Hood Tax, said: “This is a colossal amount of money in a single year, but sadly it is not the exception – scandals, criminal activity and pay controversies have become the norm in this disgraced sector.

“Rather than continue to chase the tail of our feral banks for ever, the Government should implement a Robin Hood Tax that would rein in some of the banking sector’s worst excesses and raise much-needed revenue that could protect public services.

“It is time banks started working in Britain’s interests. For too long it’s been the other way around.”

Fines were originally used by the FCA to fund its activities, therefore resulting in lower fees for regulated firms which behaved themselves. The widespread nature of the banking industry’s misconduct has seen a change in policy, and the Treasury has increasingly been taking a some or all of the big fine pots to use for “socially desirable” purposes.

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