A tidal wave of civil litigation is in expected after City watchdog the Financial Conduct Authority (FCA) fined five banks a total of £1.1bn for rigging the £3.4trn-a-day foreign exchange market (forex) on the 12th November.
The five – Citibank, HSBC, JP Morgan Chase, Royal Bank of Scotland and UBS – can all expect to be hit by claims from clients including pension funds, foreign property owners and other foreign exchange houses, according to solicitors in London who have been quietly lining up litigants for the last two years.
A vital component of any successful action will be proving that a bank behaved in such a way that it profited at the expense of its customers.
The FCA statement said: ‘It is completely unacceptable for firms to engage in attempts at manipulation for their own benefit and to the potential detriment of certain clients and other market participants. Our final notices include examples where each bank’s trading made a significant profit.’
The final notices also all contain references to collusion between traders at different banks using online messaging and chatrooms. The FCA cites one example of such chatroom manipulation which netted Citibank a profit of £62,581 and another in which HSBC banked £102,425.
The notices could prove a boon for those bringing cases because they also contain examples of traders congratulating themselves after successfully manipulating forex rates. This, from one UBS trader, is typical: ‘The best fix of my UBS career’ – after he used a chatroom to move rates to produce a profit for £328,100 for UBS.
Chancellor George Osborne has said a share of the fines will be taken by the Treasury and ’used for the wider public good’.
Tracey McDermott, the FCA’s director of enforcement and financial crime, said: ‘Firms could have been in no doubt, especially after Libor, that failing to take steps to tackle the consequences of a free for all culture on their trading floors was unacceptable. This is not about having armies of compliance staff ticking boxes. It is about firms understanding, and managing, the risks their conduct might pose to markets.
‘Where problems are identified we expect firms to deal with those quickly, decisively and effectively and to make sure they apply the lessons across their business. If they fail to do so they will continue to face significant regulatory and reputational costs.’