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