Fresh blow for SFO as it drops forex-rigging investigation

Latest setback comes two months after six traders were cleared of rigging Libor rates in a high-profile prosecution brought by the agency

The FCA found that traders formed tight-knit groups to share information and fix rates at the expense of their clients (Getty Images)

The Serious Fraud Office has been forced to drop a criminal probe into the rigging of the $5trn-(£3.5trn)-a-day foreign exchange market despite “reasonable grounds” to suspect wrongdoing, the enforcement agency said.

The latest setback for the SFO comes two months after six traders were cleared of rigging Libor rates in a high-profile prosecution brought by the agency.

A host of the world’s biggest financial institutions – Royal Bank of Scotland, Barclays, Citigroup, UBS, JP Morgan, HSBC and Bank of America Merrill Lynch – have paid almost $10bn in fines to regulators on both sides of the Atlantic for manipulating markets since 2014.

The Financial Conduct Authority – which levied £1.4bn in fines in November 2014 and May last year – found that traders formed tight-knit groups such as “the three musketeers” and “the A-team” to share information and fix rates at the expense of their clients. In July 2014 the FCA referred the case to the SFO, which then launched an investigation involving 27 staff and the review of more than half a million documents.

But the SFO said that based on the material obtained, “there is insufficient evidence for a realistic prospect of conviction”. It added: “Whilst there were reasonable grounds to suspect the commission of offences involving serious or complex fraud, a detailed review of the available evidence led us to the conclusion that the alleged conduct, even if proven and taken at its highest, would not meet the evidential test required to mount a prosecution.” It was decided, the SFO added, that “this evidential position could not be remedied by continuing the investigation”.

The only recent success for the agency in the arena of financial crime was the conviction of Tom Hayes, a UBS trader. Hayes, who maintains his innocence, received an 11- year sentence.

Ben Rose, white-collar crime expert and co-founder at law firm Hickman & Rose, said the SFO had been spooked by its failure at the trial in January. The decision, he added, “suggests that the SFO is losing its appetite for risk and the Hayes verdict may be the high water mark for these prosecutions”.

But the dropping of the SFO’s criminal case does not end the prospect of further sanctions against individuals. The FCA could consider a civil prosecution involving a lower standard of proof, potentially landing forex-riggers with fines and bans. The SFO is also assisting the US Department of Justice’s criminal investigation into what attorney-general Loretta Lynch labelled a “brazen display of collusion”.