The European Union has fined five of Europe’s biggest banks €1,2 billion after traders conspired to rig the foreign exchange market.
The banks formed two cartels – ‘Banana Split’ comprising Barclays, RBS, Citigroup and JP Morgan while Barclays and RBS were joined by the Japanese MUFG Bank in ‘Essex Express’.
Banana Split was fined a total of €811 million and Essex Express was hit with a penalty of €258 million.
A sixth bank – the Swiss based UBS which had been part of Essex Express – was excused financial penalties after it revealed the existence of the two cartels.
Both Barclays and RBS said they have already set aside funds to pay the fines for what they call ‘legacy issues’.
The EU investigation started in 2013 and found that nine foreign exchange traders used online chatrooms to exchange trading plans and sometimes co-ordinated their trading strategies.
They manipulated the multi-trillion pound spot foreign exchange market for 11 different currencies, including the US dollar, the pound and the euro.
UBS commented: “This is a legacy matter where UBS was the first bank to disclose potential misconduct. We’ve made significant investments to further strengthen our control framework since then and are pleased this matter is resolved.”
Margrethe Vestager, Competition Commissioner, was deeply critical of the banks’ actions, saying they ‘undermined the integrity of the sector at the expense of the European economy and consumers’.
She added: “These cartel decisions send a clear message that the Commission will not tolerate collusive behavior in any sector of the financial markets.”
A Commission spokesman said: “Most of the traders participating in the chatrooms knew each other on a personal basis.
“For example, one chatroom was called Essex Express ‘n the Jimmy because all the traders but ‘James’ lived in Essex and met on a train to London.
“Some of the traders created the chatrooms and then invited one another to join, based on their trading activities and personal affinities, creating closed circles of trust.”
Information that the traders exchanged related to:
- Outstanding customers’ orders (names of clients, currencies and amounts involved)
- Prices applicable to specific transactions
- Open risk positions in different currencies
- Other details of current or planned trading.
The Commission spokesman said the chatroom conversations ‘enabled them to make informed market decisions on whether to sell or buy the currencies they had in their portfolios and when’.
A possible further twist to the incident has been raised by City lawyer Lambros Kilaniotis who claimed the Commission’s decision was ‘an open invitation for parties who may have been impacted by these cartels to sue these banks’.
He added: “If they haven’t already, any party involved in forex trading, such as institutional investors, pension funds and large corporates, should now be reviewing what losses they have incurred.”