Introduction
The Federal Reserve System in the US issued 10 cease and desist orders in relation to unsafe and unsound conduct in the FX market. Related fines total USD 2.5 billion.
Risks highlighted by FED FX orders
Following is the summary of all different behaviours and risks types highlighted in the FED FX cease and desist orders.
Governance, risk, compliance, internal audit
The lack of adequate governance, risk management, compliance and audit policies and procedures to ensure compliance with safe and sound banking practices, applicable U.S. laws and regulations, including policies and procedures to prevent potential violations of the U.S. commodities, antitrust and criminal fraud laws, and applicable internal policies
Multi-party chatrooms
Traders routinely communicated with traders at other financial institutions through chatrooms on electronic messaging platforms accessible by traders at multiple institutions
risk taxonomy: sharing confidential information
Disclosure of confidential information
Disclosures to traders of other institutions of confidential customer information
Disclosures to traders of other institutions of confidential information of the firm
risk taxonomy: sharing confidential information
Benchmarks and price manipulation
Possible agreements with traders of other institutions to coordinate FX trading in a manner designed to influence the WM/R, ECB, and other FX benchmark fixes and market prices generally
Attempts to influence contributions to submission-based foreign currency benchmarks in certain emerging market currencies in order to possibly benefit the firm, both within the firm and with traders of other institutions
risk taxonomy: benchmark manipulation
Trading with high inherent conflict of interest
Trading strategies that raised potential conflicts of interest, including spot market trades performed in connection with client orders and in connection with the benchmark associated with securities sold to investors
risk taxonomy: inappropriate order handling
Price fixing
Possible agreements with traders of other institutions regarding bid/offer spreads offered to FX customers
Price transparency
Unsafe and unsound conduct regarding the provision of information to customers regarding price quotes
risk taxonomy: misleading mark-up
Order handling transparency
Unsafe and unsound conduct regarding the provision of information to customers about how a customer’s FX order is filled
risk taxonomy: inappropriate order handling
Coordinated trading
Disclosures of trading positions and discussions of coordinated trading strategies with traders of other institutions and discussions about anticipated FX benchmark fix-related trading and submissions with traders of other institutions
risk taxonomy: coordinated trading
Derivative payout manipulation
Discussions of trading in a manner to trigger or defend certain FX barrier options within the firm, in order to benefit the firm
risk taxonomy: derivative payout manipulation
Inappropriate order handling
Misusing confidential inside information to conduct FX trades in a manner that benefitted traders and their trading desk to the detriment of firm’s corporate client
risk taxonomy: inappropriate order handling
FED FX orders and fines
| Bank | Date | Fine USD |
|---|---|---|
| 1. Bank of America | 20 May 2015 | 205,000,000 |
| 2. Barclays | 20 May 2015 | 342,000,000 |
| 3. BNP Paribas | 17 July 2017 | 246,375,000 |
| 4. Citigroup | 20 May 2015 | 342,000,000 |
| 5. Deutsche Bank | 20 April 2017 | 136,950,000 |
| 6. Goldman Sachs | 1 May 2018 | 54,750,000 |
| 7. HSBC | 29 September 2017 | 175,296,000 |
| 8. JPMorgan | 20 May 2015 | 342,000,000 |
| 9. The Royal Bank of Scotland | 20 May 2015 | 274,000,000 |
| 10. UBS | 20 May 2015 | 342,000,000 |
| Total fines | 2,460,371,000 |
Findings from individual FED FX orders
Following are observations from all FED FX orders set out by the bank
Bank of America
lack of adequate firm-wide governance, risk management, compliance and audit policies and procedures to ensure that the firm’s Covered FX Activities complied with safe and sound banking practices, applicable U.S. laws and regulations, including policies and procedures to prevent potential violations of the U.S. commodities, antitrust and criminal fraud laws, and applicable internal policies
FX traders in the spot market at the Bank routinely communicated with FX traders at other financial institutions through chatrooms on electronic messaging platforms accessible by traders at multiple institutions
disclosures to traders of other institutions of confidential customer information of the Bank
possible agreements with traders of other institutions to coordinate FX trading in a manner designed to influence the WM/R FX benchmark fix and market prices generally
trading strategies that raised potential conflicts of interest
Barclays
lack of adequate governance, risk management, compliance and audit policies and procedures to ensure that the firm’s Covered FX Activities comply with safe and sound banking practices, applicable U.S. laws and regulations, including policies and procedures to prevent potential violations of the U.S. commodities, antitrust and criminal fraud laws, and applicable internal policies
FX traders in the spot market at the Bank routinely communicated with FX traders at other financial institutions through chatrooms on electronic messaging platforms accessible by traders at multiple institutions
disclosures to traders of other institutions of confidential customer information
agreements with traders of other institutions to coordinate FX trading in a manner designed to influence the WM/R, ECB, and other FX benchmark fixes and market prices generally
trading strategies that raised potential conflicts of interest
possible agreements with traders of other institutions regarding bid/offer spreads offered to FX customers
unsafe and unsound conduct regarding the provision of information to customers regarding price quotes
unsafe and unsound conduct regarding the provision of information to customers about how a customer’s FX order is filled;
BNP Paribas
lack of adequate governance, risk management, compliance, and audit policies and procedures to ensure that firm's Covered FX Activities complied with safe and sound banking practices and applicable internal policies
Certain FX traders in the spot market routinely communicated with FX traders at other financial institutions through chatrooms on electronic messaging platforms accessible by traders at multiple institutions
disclosures of trading positions and discussions of coordinated trading strategies with traders of other institutions
discussions about anticipated FX benchmark fix-related trading and submissions with traders of other institutions
disclosures to traders of other institutions of confidential customer information
discussions regarding bid/offer spreads offered to FX customers with traders of other institutions
discussions of trading in a manner to trigger or defend certain FX barrier options within the firm, in order to benefit the firm
unsafe and unsound conduct regarding the provision of information to customers regarding price quotes and the provision of information to customers about how a customer’s FX order is filled
Citigroup
lack of adequate firm-wide governance, risk management, compliance and audit policies and procedures to ensure that the firm’s Covered FX Activities conducted at the Bank complied with safe and sound banking practices, applicable U.S. laws and regulations, including policies and procedures to prevent potential violations of the U.S. commodities, antitrust and criminal fraud laws, and applicable internal policies
FX traders in the spot market at the Bank routinely communicated with FX traders at other financial institutions through chatrooms on electronic messaging platforms accessible by traders at multiple institutions
disclosures to traders of other institutions of confidential customer information
agreements with traders of other institutions to coordinate FX trading in a manner designed to influence the WM/R, ECB, and other FX benchmark fixes and market prices generally
trading strategies that raised potential conflicts of interest
possible agreements with traders of other institutions regarding bid/offer spreads offered to FX customers
unsafe and unsound conduct regarding the provision of information to customers regarding price quotes
unsafe and unsound conduct regarding the provision of information to customers about how a customer’s FX order is filled
Deutsche Bank
lack of adequate governance, risk management, compliance, and audit policies and procedures to ensure that firm’s Covered FX Activities complied with safe and sound banking practices and applicable internal policies
FX traders in the spot market routinely communicated with FX traders at other financial institutions through chatrooms on electronic messaging platforms accessible by traders at multiple institutions
disclosures of trading positions and, on some occasions, discussions of coordinated trading strategies with traders of other institutions
discussions about possible FX benchmark fix-related trading with traders of other institutions
attempts to influence contributions to submission-based foreign currency benchmarks in certain emerging market currencies in order to possibly benefit the firm, both within the firm and with traders of other institutions
discussions regarding bid/offer spreads offered to FX customers for FX non-deliverable forward contracts with traders of other institutions in an emerging market currency
discussions on trading in a manner to trigger or defend certain FX barrier options within the firm, in order to benefit the firm
HSBC
lacked adequate governance, risk management, compliance, and audit policies and procedures to ensure that firm’s Covered FX Activities complied with safe and sound banking practices and applicable internal policies
prior to December 2012, certain FX traders in the spot market routinely communicated with FX traders at other financial institutions through chatrooms on electronic messaging platforms accessible by traders at multiple institutions
misusing confidential inside information to conduct FX trades in a manner that benefitted traders and their trading desk to the detriment of firm’s corporate client
possible agreements with traders of other institutions to coordinate FX trading in a manner designed to influence benchmark fixes and market prices generally
attempts to influence contributions to a submission-based foreign currency benchmark in a certain emerging market currency in order to possibly benefit the firm
trading strategies that raised potential conflicts of interest
disclosures to traders of other institutions of confidential information of the firm
JPMorgan
lack of adequate Firm-wide governance, risk management, compliance and audit policies and procedures to ensure that the Firm’s Covered FX Activities conducted at the FX Subsidiaries complied with safe and sound banking practices, applicable U.S. laws and regulations, including policies and procedures to prevent potential violations of the U.S. commodities, antitrust and criminal fraud laws, and applicable internal policies
FX traders in the spot market at the FX Subsidiaries routinely communicated with FX traders at other financial institutions through chatrooms on electronic messaging platforms accessible by traders at multiple institutions
disclosures to traders of other institutions of confidential customer information
agreements with traders of other institutions to coordinate FX trading in a manner designed to influence the WM/R and ECB FX benchmark fixes and market prices generally
trading strategies that raised potential conflicts of interest
possible agreements with traders of other institutions regarding bid/offer spreads offered to FX customers
the provision of information to customers regarding price quotes
the provision of information to customers about how a customer’s FX order is filled
RBS
lack of adequate governance, risk management, compliance and audit policies and procedures to ensure that the bank's Covered FX Activities complied with safe and sound banking practices, applicable U.S. laws and regulations, including policies and procedures to prevent potential violations of the U.S. commodities, antitrust and criminal fraud laws, and applicable internal policies
FX traders in the spot market routinely communicated with FX traders at other financial institutions through chatrooms on electronic messaging platforms accessible by traders at multiple institutions
disclosures to traders of other institutions of confidential customer information
agreements with traders of other institutions to coordinate FX trading in a manner designed to influence the WM/R and ECB FX benchmark fixes and market prices generally
trading strategies that raised potential conflicts of interest
possible agreements with traders of other institutions regarding bid/offer spreads offered to FX customers
UBS
lack of adequate governance, risk management, compliance and audit policies and procedures to ensure that the firm’s Covered FX Activities complied with safe and sound banking practices, applicable U.S. federal and state laws and regulations, including policies and procedures to prevent potential violations of the U.S. commodities, antitrust and criminal fraud laws, and applicable internal policies
FX traders in the spot market routinely communicated with FX traders at other financial institutions through chatrooms on electronic messaging platforms accessible by traders at multiple institutions
disclosures to traders of other institutions of confidential customer information of the Bank and the Branch
agreements with traders of other institutions to coordinate FX trading in a manner designed to influence the WM/R and ECB FX benchmark fixes and market prices generally
trading strategies that raised potential conflicts of interest, including spot market trades performed in connection with client orders and in connection with the benchmark associated with securities sold to investors
possible agreements with traders of other institutions regarding bid/offer spreads offered to FX customers
unsafe and unsound conduct regarding the provision of information to customers regarding price quotes
unsafe and unsound conduct regarding the provision of information to customers about how a customer’s FX order is filled