Slap on the wrist: six banks fined record $3.4bn in currency manipulation probe

© Reuters / Yuriko Nakao

Some of the world's biggest banks - UBS, Citigroup, JPMorgan Chase, Royal Bank of Scotland, and HSBC have agreed to pay out $3.4 billion to settle an investigation into the institutions' rigging of foreign exchange rates.

The probe accused banks of tampering with currency interbank rates on the largely unregulated $5.3 trillion-a-day foreign exchange market.

"The setting of a benchmark rate is not simply another opportunity for banks to earn a profit. Countless individuals and companies around the world rely on these rates to settle financial contracts, and this reliance is premised on faith in the fundamental integrity of these benchmarks," Aitan Goelman, Director of Enforcement at CFTC, said in a press release on Wednesday.

"The market only works if people have confidence that the process of setting these benchmarks is fair, not corrupted by manipulation by some of the biggest banks in the world," Goelman added.

US, UK, and Swiss regulators ordered the fines in tandem. The UK's Financial Conduct Authority (FCA) slapped the six banks with $1.7 billion in fines and the US Commodity Futures Trading Commission (CFTC) levied more than $1.4 billion in penalties.

Switzerland's UBS was given the biggest fine of $800 million, Citigroup will pay $668 million, JPMorgan must pay a $662 million penalty, Royal Bank of Scotland was fined $634 million, and HBSC $618 million.

Charges against individuals are expected.

The investigation started eighteen months ago and is continuing. Evidence shows collusion between traders began in 2009.

Barclays said it had not reached a settlement, and Germany's biggest bank, Deutsche Bank, is still under investigation. Deutsche Bank is one of the few banks to have already dismissed currency traders over probes involving alleged Forex manipulation.

The Swiss Financial Market Supervisory Authority, Finma, was the first to confirm it had uncovered illegal currency rate rigging in April. That was followed by the US, UK, Germany and a dozen other regulators across four continents who are examining the manipulation of currency at major banks in the largely unregulated foreign exchange market.

Many regulators worry currency rigging is the next Libor scandal when banks manipulated the Libor interbank lending rate by setting it low against the dollar in order to mask their financial problems. In that case over $6 billion in fines have been doled out to dozens of banks.

Comment: Oh the poor banks. Also FINMA has capped UBS bonuses:

Switzerland's regulator FINMA ordered UBS, the country's biggest bank, to pay 134 million francs ($139 million) after it found serious misconduct in both foreign exchange and precious metals trading. It also capped bonuses for dealers in both units at twice their basic salary for two years.

Those poor dealers. How will they possibly survive? Maybe a raise in their base pay to keep them happy.

The investigation has provoked major changes to the foreign exchange market with a clamp down on chatrooms, the suspension or firing of more than 30 traders, an increase in automated trading and new regulatory changes to benchmarks which world leaders are expected to sign off on at the G20 summit in Brisbane this weekend.

This exposure of the banks' currency rigging requires a change in policy so that it becomes less transparent. Unless jail time is given to the heads of these banks, these fines and limits on bonuses will do little to stop the banks from finding new ways to rig currency markets for their own profits. It's the psychopathic way after all.