Forex manipulation: Probe widens, big banks may pay more

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November 12, 2014 12:02 AM

US body too plans action, may impose $300-m fine on each bank

As authorities in the US and Britain ready actions this week against giant banks suspected of manipulating the foreign-currency market, both the number of government agencies involved and the cost of settling the cases continues to grow.

The banks learned on Monday that the US Commodity Futures Trading Commission in Washington was planning to announce its own settlements in the case, according to people briefed on the matter. That ended weeks of suspense over whether the agency would act in coordination with British authorities and American banking regulators. The agency is expected to level around $300 million in fines against each of the banks, the people said, with the worst offenders paying slightly more and marginal players somewhat less.

The trading commission— along with the Financial Conduct Authority of Britain and the Office of the Comptroller of the Currency in Washington — is planning to announce the settlements early Wednesday.

But as of Monday, it was unclear how many banks the commission would act against. The agency has held settlement talks with the same six banks that are settling with the British regulator — Barclays, JPMorgan Chase, Citigroup, the Royal Bank of Scotland, UBS and HSBC — but hurdles remain. Some banks still need to receive board approval before settling with the trading commission, the people said, and at least one bank continues to negotiate with the agency.

The trading commission’s involvement in the case is a double-edged sword for the banks. A settlement would afford them the so-called global settlement they have long sought, providing closure on most of their civil legal exposure stemming from the foreign currency case.
But the trading commission is expected to impose tougher language in its settlement than its British counterparts. The US agency, people briefed on the matter said, will accuse the banks of manipulating benchmarks for foreign currencies, the largest and yet least regulated market in the financial world, rather than simply not having in place systems or controls to prevent manipulation.

The trading commission’s role in the case — the first huge enforcement action under the agency’s new chairman, Timothy Massad, and enforcement director, Aitan Goelman — also raises the overall price tag of the deal. Its penalties would come on top of payouts to the Financial Conduct Authority, Britain’s financial watchdog, which plans to settle with all six banks this week for a total of about £1.2 billion, or $1.9 billion. The Office of the Comptroller of the Currency, a banking regulator in Washington, is also planning to settle with some of the banks involved in the so-called global settlement. Separately, the comptroller’s office is poised to announce a settlement with Bank of America.

Over the last few weeks, the banks have been signalling that huge payouts were looming. Citigroup and Bank of America revised their previously reported earnings for the third quarter to take the settlements into account.

The series of settlements will close the first chapter of the foreign exchange investigation, which has rattled the banking world since it first came to light last year. The next phase of the case will most likely be more painful, as the focus shifts to criminal investigations and individual liability.

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