Forex: European Commission fines five banks for currency market cartel

In two decisions dated May 16, 2019, the European Commission (EC) fined five banks—Barclays, The Royal Bank of Scotland (“RBS”), Citigroup, JPMorgan, and MUFG—over €1.068 billion for taking part in two foreign exchange market cartels involving over 11 different currencies. The two cartels were revealed by UBS, which was thus spared from a fine under the leniency notice.

The conclusion of these cases with two settlement procedures brings the EC’s investigations, which started in September 2013, to a close. Also, in 2014, HSBC, RBS, UBS, JPMorgan, Citibank, and Bank of America were fined for the same practices in the United States and UBS in Switzerland.

The EC’s two probes revealed that some traders on the Forex spot market acting on behalf of the banks exchanged sensitive information and trading plans, and sometimes coordinated their trading strategies through various online professional chat rooms on Bloomberg terminal:

• The first decision, referred to as the “Forex – Three Way Banana Split“ infringement, involves traders from Barclays, RBS, Citigroup, and JPMorgan, who exchanged information on three online chat rooms between December 18, 2007 and January 31, 2013.
• The second decision, referred to as the “Forex-Essex Express“ infringement, involved traders from Barclays, RBS, and MUFG, who exchanged information on two online chat rooms between December 14, 2009 and July 31, 2012. Most of the traders participating in the chat rooms knew each other personally. For example, the “Essex Express ‘n the Jimmy” chatroom was so named because all the traders but “James” lived in Essex and met on the train from Essex to London.

According to the EC, the sensitive information exchanged on the chat rooms consisted of:

1. Orders from large clients (client names, the amounts to be exchanged, and the specific currencies concerned).
2. Differences in the buying and selling prices (bid-ask spreads) for two currencies in specific transactions.
3. Open risk positions. The currencies they needed to sell or buy to convert their portfolios into their bank’s currency (open risk positions).
4. Other details of current or planned trading operations.

According to the EC, the information exchanged enabled the traders to take informed market decisions when exchanging currencies and sometimes allowed them to identify opportunities for coordination, e.g., through a practice known as “standing down” (where some traders would temporarily refrain from trading the currencies so as not to interfere with another trader in the chat room).

In both cases, UBS was the bank that revealed the illegal practices to the EC under the leniency notice and so avoided fines totaling €285 million. The other banks benefited from a 10% reduction in their fines under the settlement procedure. These two decisions bring the EC’s final decisions under the settlement procedure to 31 since the procedure began in June 2008.

The decisions are in addition to the fines the EC previously imposed in similar matters involving the financial sector. In 2013, the EC levied fines totaling €1.7 billion (reduced to €1.49 billion in 2016 after Société Générale restated its earnings) on eight banks for forming a cartel to rig interest rates for financial derivatives. Four of the banks (Barclays, Deutsche Bank, Société Générale, and RBS) took part in the Euro interest rate derivatives (“EIRD”) scheme and six (UBS, RBS, Deutsche Bank, JPMorgan, Citigroup, and RP Martin) in the Japanese yen interest rate derivatives (“YIRD”) cartel. All took part in the settlement procedure and benefited from a 10% reduction for their cooperation. For banks that did not join in the settlement procedure, the proceedings remained open until 2016, when the EC fined Crédit Agricole, HSBC, and JPMorgan for their role in the EIRD cartel, levying fines of €485 million, and in 2015, it fined the ICAP brokerage firm for its participation in the YIRD cartel, imposing an amount of €14.96 million.

Lastly, in 2014, the EC fined RBS and JPMorgan €61.6 million for engaging in a bilateral arrangement aimed at influencing the Swiss franc interbank (CHF Libor) rate.

The EC has not yet finished all its probes. Currently, it is still investigating two possible cartels in secondary government bond markets—the first for US bonds and the second for European bonds —in which it sent out objections in December 2018 and January 2019, respectively.  

The large number of probes and the high amounts of the fines highlight both the EC’s interest in investigating collusion and the significance of compliance in the sector. In this regard, the EC recently released a report on potential anticompetitive practices in the loan syndication sector that all banks operating in the sector should keep in mind.

For confidentiality reasons, the two latest settlement notice decisions have not yet been made public. However, you can access the press release here.