Regulators in the UK and the US have handed out major fines totalling more than £2bn to five major banks for manipulating currency exchange rates. Royal Bank of Scotland, HSBC, US banks JP Morgan and Citibank, and the Swiss bank UBS were all found to be sharing information so that their banks could profit from changes in exchange rates.
What exactly happened?
€3.8 trillion is moved around the world in currency exchanges everyday, 40 percent of this money goes through London.
Individual transactions can be as big as hundreds of millions of Euros, big enough to alter currency prices.
The allegation is that when traders received large orders from clients to exchange currency they were sharing this information, so banks could make money by knowing what was about to happen in the currency market.
While massive amounts of money are involved in currency exchanges, it is one of the least regulated areas of finance.
Working culture
The Financial Conduct Authority (FCA) is the body who imposed the fines in the UK, and it said that traders operated in a 'free for all culture' between 2008 and 2013.
They found that banks formed tight relationships and exchanged information about upcoming moves in the market in private chat rooms.
The groups of traders had code-names like “the 3 musketeers”, “the players” and “the A-team”.
The FCA has released transcripts of communications between traders, they feature lines like: “Hooray nice teamwork” , “have that my son...v nice mate” and “nice work gents...I don my hat”.
Going Forward...
Barclays were not fined today but it has been involved in the controversy. The bank pulled out of settlement talks, and are hoping to agree new terms with regulators.
It was believed that the FCA would also take action against Deutsche Bank over its currency trading practises, but The Wall Street Journal are reporting that the FCA contacted the bank before this morning's announcement to say it would not be taking any action against Germany's biggest bank.
Deutsche Bank has previously fired and suspended a small number of currency traders following their own internal investigation into trading practises.
The bank is still facing investigations from financial regulators in Germany and the US over it has traded currencies.
