Five banks have been fined a collective €1.07 billion by the European Commission for running a “cartel” that manipulated foreign exchange rates for financial gain.
The European Commission announced on Thursday that it had issued fines worth a collective €1.07 billion to JP Morgan, RBS, Citigroup, Barclays and MUFG for rigging currency markets for financial gain. Worst hit were RBS and Citi, which both must pay €310 million.
The Commission’s 5-year long investigation revealed that individual FX traders at the banks had created a “spot trading cartel” that was powerful enough to manipulate the market values of currencies. The traders used online chatrooms to share sensitive information relating to internal FX positioning and details of upcoming trades, and perhaps most crucially, customer orders.
The use of customer order information is among the most serious forms of “insider dealing” because it is frequently used in a manner that goes against the customer’s own interests as part of “front running” — the practice of placing internal trades before sending large, market-moving customer orders to market.
In the Commission’s own words, data shared among traders “enabled them to make informed market decisions on whether to sell or buy the currencies they had in their portfolios and when.”
Leading the investigation was Margrethe Vestager, who is quoted in the Commission’s press release as saying: “These cartel decisions send a clear message that the Commission will not tolerate collusive behavior in any sector of the financial markets.” She was too kind when she said that the banks had “undermined the integrity of the sector.”
The foreign exchange market is worth $5 trillion a day, making it the world’s largest financial market, and is the pillar on which all international trade and investing relies.
Fines by the European Commission are for infringements between December 2007 and January 2013 and follow those imposed for similar offences in 2014 by the UK’s FCA and two US regulators, the OCC and CFTC.