Banks Fined For Exchange Rate Tampering
European stock indices dropped on Wednesday as regulators fined several major lenders over a foreign exchange scandal.
Thursday, November 13, 2014
Officials from the US, Switzerland and Great Britain fined HSBC Holdings Plc, Royal Bank of Scotland and UBS AG as settlement for a probe into foreign exchange manipulation. Barclays Plc would not reach an agreement and slid 2%.
The Stoxx Europe 600 dropped 0.9%, France’s CAC 40 declined 1.3%, Germany’s DAX 30 slipped 1.5% and Italy’s FTSE MIB fell 2.2%.
“There are a lot of unknowns for banks,” Dirk Thiels, head of investment management at KBC Asset Management NV, told Bloomberg. “Further litigation, provisions and regulation will surface in the next months or years and that will really push down profitability for the banking sector.”
Widespread manipulation occurred for years
According to the Wall Street Journal, five banks paid $3.3 billion USD in fines for their transgressions. The banks are alleged to have worked in conjunction to control the broad foreign exchange market as an effort to increase their profits. Some employees revealed the tampering years ago, but the banks continued their manipulation until 2013 when the first punishment finally took place.
Regulators said the banks teamed up to alter a currencies benchmark used to set exchange rates across the industry. The lenders also made efforts to initiate stop orders with some clients as a means of boosting their own profits. Finally, the five banks allowed traders to share confidential information about their clients with one another through electronic chat rooms.
The lenders did not argue the allegations. Some indicated they were unaware of the misbehavior and swore to track down the employees guilty of fraud. RBS said it is now “reviewing the conduct of over 50 current and former members of trading staff around the world as well as dozens of supervisors and senior management.”
These are not isolated allegations. Lenders have accumulated tens of billions of dollars in fines over the last few years as the result of interest rate manipulation, sanctions infringement and illegally selling a number of financial products.
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