Global Banks Settle Charges of Foreign Exchange Rigging
English: A 6 (2×3) segment panoramic view of the three tallest skyscrapers in Canary Wharf, London, as viewed from Cabot Square. Taken by myself with a Canon 5D and 17-40mm lens at 22mm, and stitched with PTGui (mercator projection). (Photo credit: Wikipedia)It may have been the biggest ever fine meted out by British regulators, but, in the end, the banks accused of foreign exchange market hijinks may have got off lightly.
The UK Financial Conduct Authority on Wednesday announced that five global institutions are to pay a combined $3.4 billion to settle allegations of rigging the foreign exchange market. For most of the offenders, the penalty falls short of provisions already set aside in connection with probe.
Investors took the news in their stride. Shares in Citigroup , HSBC, and the Royal Bank of Scotland all fell by less than 1%. JP Morgan Chase slipped by a more dramatic 1.7%, but shares in UBS - which agreed to fork over more than $800 million, the biggest single penalty - ended the day slightly higher.
Did the penalties fit the crime? Foreign exchange dealers claim that the banks' actions constituted a breach of ethics, but not of securities law. The currency markets churn $5.4 trillion dollars every day, in financial centres across the globe. Most transactions take place between banks. Until recently, regulators scarcely dipped a toe in the market.
The banks were accused of rigging London foreign exchange fixing - a daily snapshot of currency levels - by sharing information about client business that would affect the level of the fix.
Amoral? Absolutely. But the foreign exchange market isn't governed by the insider dealing regulations that underpin the equity markets. 'It's like a game of poker, where every player knows everyone else's hand,' said one foreign exchange dealer, who did not want to be named.
The affair raises some questions about the role of the regulators in Britain. As in the case of the rigging of the London Interbank Offering Rate, there were fairly obvious conflicts of interest in allowing the very dealers who could profit from the setting of a benchmark to play such a prominent role in determining its level.
The Bank of England dismissed its chief foreign exchange dealer on Tuesday, insisting that the termination had nothing to do with the misdeeds of the banks. Insiders claim that the questionable conduct of the departing Martin Mallett did come to light during investigations into the actions of key foreign exchange institutions.
There has been little discussion of the victims of the foreign exchange market manipulation. UK Chancellor of the Exchequer George Osborne faced the cameras on Wednesday morning, vowing to apply the fines to the 'greater public good.' There was no word on whether parties disadvantaged by the market rigging would be compensated in any fashion.
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