Fines & Penalties Monitor: September 2017

The total amount of fines, penalties and settlements paid out by the 18 largest institutions headquartered in the U.S. and Europe slightly increased in September compared to August, increasing the year-to-date total from $9.7B to $10.1B.  The two banks paid a combined $365.3MM and both banks were penalized over foreign exchange rigging claims.

First, the Federal Reserve Board fined HSBC Holdings Plc and its subsidiary HSBC North America Holdings Inc. $175.3MM over accusations of unsafe and unsound practices in its foreign exchange trading business.  The Fed said HSBC failed to detect and address the misuse of confidential customer information by its traders, as well as the use of electronic chatrooms to communicate with competitors about their trading positions. HSBC is now required to improve control and fix shortfalls in “governance, risk management, compliance, and audit policies” pertaining to its foreign exchange trading operations. HSBC has been fined before for manipulating exchange rates.  In 2014, the bank was penalized over $600MM by the U.S. Commodity Futures Trading Commission and Britain’s Financial Conduct Authority for rigging currency benchmarks.  In August, the bank confirmed that it is still under investigation by the U.S. Department of Justice for the 2014 currency benchmark rigging and has set aside more than $1B for possible settlements.

Deutsche Bank became the 15th out of 16 defendants to settle a 2013 class-action lawsuit regarding allegations of rigging foreign exchange rates.  Investors alleged that the banks conspired to rig key foreign exchange rates by sharing confidential orders and trade information to match up their strategies.  According to Reuters, this manipulation was allegedly done through chat rooms with such names as “The Cartel” and “The Mafia.”  Total of settlements have reached $2.3B with Deutsche Bank agreeing to pay $190.0MM.  Deutsche Bank did not admit to any wrongdoing.

According to Reuters, the total worldwide currency-rigging probes have resulted in about $10B in fines for several large banks.  This year alone, the 18 largest U.S. and European banks settled a total of 14 lawsuits related to foreign exchange rigging, resulting in $2.5B in fines.  Continue to stay on top of industry risk by reading next month’s blog post.



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