EU FX Probe Nears Conclusion as Major Banks Negotiate Settlement

A settlement with each of the eight banks in the alleged cartel is expected in the next few months.

A total of eight lenders are poised to begin a round of discussions with the European Commission following allegations of forex market rigging. The landmark case involves a cartel of banks and represents the latest crackdown against abuse and misconduct into a nearly $5.3 trillion currency market.

In terms of fines, the FX market has been one of the most targeted segments of the financial services industry over the past few years with billions in fines being doled out to big banks for rigging charges. The commission had undergone a four-year probe into eight banks – UBS, Royal Bank of Scotland (RBS), JPMorgan Chase, Citigroup, Barclays, HSBC, and two other banks, per an FT report.

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Massive probe unearths latest misconduct

The banking sector has been relatively muted in terms of large-scale fines in 2017, with a settlement with the commission potentially resulting in an aggregated settlement of billions of euros. The probe dates back to 2013, when European authorities had delved deeper into the behavior of the eight banks across several currencies.

The probe itself deals with the manipulation of forex rates, however the complexity of the case cannot be overstated given the large number of players and currencies under consideration. Fines could easily exceed the previous settlements of nearly €2.0 billion seen during the commission’s earlier investigations that violated EU competition rules.

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A four-year investigation follows on the heels of US, British, and Swiss attempts to police the FX industry, totalling over €320 billion since 2008, citing data from the Boston Consulting Group. Unfortunately for lenders, and by extension their respective shareholders, the investigation is unlikely to reach an immediate conclusion, instead being negotiated with EU authorities over the next few months.

FX crackdown

The news is a huge blow to banking confidence and to an industry that has already been reeling in 2016-17 amidst profit woes and an erosion of revenues. Indeed, the banking industry had been trying to move past previous transgressions and episodes of abuse, with fines weighing down earnings reports that have drawn the ire of shareholders.

Members of each of the eight banks have individually met EU authorities since the start of 2017 to help facilitate ongoing negotiations. Any potential fines are expected to be announced next year, with banks remaining mum on the subject thus far – the negotiating phase has historically been a long and drawn out affair for lenders.

Previously, banks have entered into immunity deals or evaded the bulk of fines given evidence supplied by whistleblowers and tipsters. In many cases, banks have also been quick to enter into a settlement, thereby allaying a 10 percent portion of the fines. The latest news also signals a heightened level of scrutiny facing banks, their employees, and their conduct in recent years.

Recall earlier this fall the case of HSBC’s former Head of FX, Mark Johnson, who faced trial in the US for his actions into a $3.5 billion Cairn Energy transaction. Regulatory authorities in both the United States and Europe have shown their teeth on the subject as fines are certainly coming. Finance Magnates will update you on the situation as it develops.

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