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Major Banks Fined $1.2 Billion by EU for Forex Rigging

Barclays, Citigroup, J.P. Morgan, MUFG, and the Royal Bank of Scotland have been fined a total of 1.07 billion euros ($1.2 billion) by EU antitrust regulators for manipulating the spot foreign exchange market for 11 currencies. This significant penalty underscores the regulatory authorities' intolerance for such collusive behavior in the financial sector.

UBS Exempt from Fine After Alerting Authorities

Swiss bank UBS was exempted from a 285 million euro fine because it alerted the European Commission to the existence of two cartels. This exemption highlights the importance of whistleblowing in uncovering and addressing market manipulations. The financial industry has faced multi-billion euro fines globally over the past decade for rigging key benchmarks, indicating a widespread issue within the sector.

EU Commissioner’s Statement on Forex Market Rigging

EU Commissioner Margrethe Vestager emphasized the gravity of the situation, stating, “Companies and people depend on banks to exchange money to carry out transactions in foreign countries. Foreign exchange spot trading activities are one of the largest markets in the world, worth billions of euros every day.” She further noted, “Today we have fined Barclays, The Royal Bank of Scotland, Citigroup, J.P. Morgan, and MUFG Bank. These cartel decisions send a clear message that the Commission will not tolerate collusive behavior in any sector of the financial markets. The behavior of these banks undermined the integrity of the sector at the expense of the European economy and consumers.”

Six-Year EU Investigation Uncovers Collusion

The EU's six-year investigation revealed that individual traders from various banks in charge of forex trading exchanged sensitive information and trading plans through online professional chat rooms. This practice allowed them to make informed market decisions about whether to sell or buy currencies in their portfolios. The Commission’s report stated, “The information exchanges enabled them to make informed market decisions on whether to sell or buy the currencies they had in their portfolios and when.” The investigation found that most traders knew each other personally and logged into multilateral chatrooms on Bloomberg terminals throughout the day, discussing various subjects, including updates on their trading activities.

Banks’ Responses to the Fines

Barclays declined to comment when contacted by CNBC. In contrast, a spokesperson from RBS expressed satisfaction with reaching a settlement with the regulators, stating, “Today’s fine is a further reminder of how badly the bank lost its way in the past, and we absolutely condemn the behavior of those responsible. This kind of behavior has no place at the bank we are today; our culture and controls have changed fundamentally during the past ten years.”

Ongoing U.S. Investigation and Related Fines

A similar case with U.S. regulators is ongoing, where Barclays, BNP Paribas, Citigroup, J.P. Morgan, Royal Bank of Scotland, and UBS have entered related guilty pleas and been collectively fined more than $2.8 billion. U.S. regulators indicated that the foreign exchange rate rigging was allegedly conducted through chat rooms with names such as “The Cartel,” “The Mafia,” and “The Bandits’ Club,” using tactics named “front running,” “banging the close,” “painting the screen,” and “taking out the filth.”

Impact on Share Prices

The news of the fines impacted the share prices of the involved banks. Shares of Barclays and RBS were trading lower, while UBS shares edged slightly higher. Meanwhile, J.P. Morgan and Citigroup shares saw a slight dip in pre-market trading, reflecting investor reactions to the regulatory actions and penalties.

Importance of Regulatory Oversight in Financial Markets

The substantial fines and ongoing investigations underscore the critical role of regulatory oversight in maintaining the integrity of financial markets. The actions taken by both EU and U.S. regulators serve as a deterrent to future collusive behavior and emphasize the necessity of transparency and compliance within the financial industry. Ensuring that banks adhere to ethical trading practices is vital for protecting the interests of consumers and maintaining trust in the financial system.

Conclusion: A Strong Message Against Collusion

The fines imposed on Barclays, Citigroup, J.P. Morgan, MUFG, and the Royal Bank of Scotland for forex rigging send a clear message that collusion and market manipulation will not be tolerated. The exemption granted to UBS for its role in exposing the cartels highlights the importance of internal vigilance and cooperation with regulatory authorities. As the financial industry continues to evolve, maintaining stringent compliance and ethical standards will be essential for fostering a fair and transparent market environment. The ongoing scrutiny and regulatory actions reinforce the commitment of global authorities to uphold the integrity of financial markets and protect the interests of all market participants.