Brussels: European Union regulators on Thursday fined five global banks a total of 1.07 billion euros, or $1.2 billion, for participating in foreign exchange spot trading cartels and manipulating the foreign-exchange currency market.
The five banks are Barclays plc (BCS,BARC.L), Royal Bank of Scotland Group Plc (RBS,RBS.L), Citigroup Inc. (C), JPMorgan Chase & Co. (JPM) and Japan’s MUFG Bank, formerly known as Bank of Tokyo-Mitsubishi. The banks will pay fines ranging between 69.7 million euros and 310.8 million euros, with Citibank handed the biggest fine.
Swiss bank UBS Group AG (UBS) was exempted from a fine of about 285 million euros as the bank in 2013 revealed the existence of the cartels to the Commission. UBS received full immunity for revealing the existence of the cartels.
The European Commission said that in two settlement decisions, it has fined the five banks for taking part in two cartels in the spot foreign exchange market that involved eleven currencies that are the most liquidated and traded currencies worldwide.
Under the first settlement decision for the so-called “Forex – Three Way Banana Split” cartel, the European Commission imposed a total fine of 811.20 million euros on Barclays, RBS, Citigroup and JPMorgan. The Three Way Banana Split infringement started on December 18, 2007 and ended on January 31, 2013.
For the so-called “Forex- Essex Express” cartel, the European Commission imposed a total fine of 257.68 million euros on Barclays, RBS and MUFG Bank. The Essex Express infringement started on December 14, 2009 and ended on July 31, 2012.
Commissioner Margrethe Vestager, in charge of competition policy said, “Foreign exchange spot trading activities are one of the largest markets in the world, worth billions of euros every day. Today we have fined Barclays, the Royal Bank of Scotland, Citigroup, JPMorgan and MUFG Bank and these cartel decisions send a clear message that the Commission will not tolerate collusive behaviour in any sector of the financial markets.”
The Commission said its investigation found that some individual traders in charge of forex spot trading of these currencies on behalf of these five banks exchanged sensitive information and trading plans as well as coordinated trading strategies through various online professional chat rooms.
The European Commission said individual traders at the banks involved formed two cartels to manipulate the spot foreign exchange market for 11 currencies, including the dollar, the euro and the pound.
“The information exchanges, following the tacit understanding reached by the participating traders, enabled them to make informed market decisions on whether to sell or buy the currencies they had in their portfolios and when,” the Commission said.
“These cartel decisions send a clear message that the Commission will not tolerate collusive behavior in any sector of the financial markets,” European Competition Commissioner Margrethe Vestager said in a statement.
“The traders, who were direct competitors, typically logged in to multilateral chatrooms … and had extensive conversations about a variety of subjects, including recurring updates on their trading activities,” the Commission’s statement said.
The “Essex Express” cartel, which also involved a chatroom called “Semi Grumpy Old Men”, ran between December 2009 and December 2012. The second cartel – called “Three Way Banana Split” and involving other chatrooms named “Two and a half men” and “Only Marge” – ran from December 2007 until January 2013.
Information traders swapped in the chatrooms included information on their clients’ orders, the bid-ask spreads for specific transactions, their open risk positions and other details of current or planned trading activities.
Occasionally the traders would co-ordinate trading activity, for example through a practice called ‘standing down’ whereby some of the group would temporarily stop trading to avoid interfering with others, the commission said.
JP Morgan and RBS both said they were pleased to have settled the cases and that they had since made changes to their controls.
JP Morgan said it related to the conduct of one former employee and RBS that it served as a reminder of how it had lost its way in the past.
MUFG said it had also taken measures to prevent a re-occurrence.
Barclays and Citigroup declined to comment.
Banks have been hit with billions of dollars in fines worldwide over the last decade for the rigging of benchmarks used in many day-to-day financial transactions, further damaging the industry’s fragile reputation after the financial crisis.
Allegations of widespread manipulation in the spot foreign exchange market were first reported in 2013 following the Libor scandal in 2012 where traders were found to have been rigging the setting of interbank lending rates.
U.S. and British authorities have since fined seven of the world’s top banks a total of around $10 billion for trying to manipulate foreign exchange rates.
Meanwhile, U.S. prosecutors have charged a handful of former traders over forex-rigging. Three former London-based currency traders were acquitted of all charges last October, although others await sentencing after convictions.
The UK Serious Fraud Office (SFO), meanwhile, dropped its own forex investigation in 2016, saying there was insufficient evidence for a realistic prospect of conviction of individuals.