Five banks have been fined over €1bn euros by the European Commission after traders acted together to rig the foreign exchange market. Four banks in the “banana split” cartel, Barclays, RBS, Citigroup and J P Morgan were fined a total of €811m. Three banks in the “Essex Express” cartel, Barclays and RBS again, plus MUFG were fined a total of €258m.
This is not the first time that the banks have been caught manipulating the Foreign Exchange (“Forex”) market. In May 2015, the Financial Conduct Authority (“FCA”) fined Barclays over £284m for failing to control business practices in relation to its Forex business in London. At the time, this was the largest financial penalty ever imposed by the FCA or its predecessor, the Financial Services Authority (“FSA”).
In this latest revelation the European Commission found that “traders had been participating in chat rooms which they had set up and knew each other on a personal level. For example, one chat room was called ‘Essex Express ‘n the Jimmy’ because all the traders in the group (apart from James) lived in Essex and met on a train to London. Some of the traders created the chat rooms and then invited one another to join, based on their trading activities and personal affinities, creating close circles of trust”.
Information which the traders exchanged included:-
- Outstanding customers order, i.e. names of clients, currencies and amounts involved.
- Open risk positions in different currencies.
- Prices applicable to specific transactions.
- Other details of current or planned trading going forward.
In the run up to the financial crisis in 2007 banks became increasingly persuasive in pushing its customers to purchase more complex options for Forex trading. Typically, SME customers were provided with a complicated presentation by the bank with a detailed disclaimer attached. In many cases, customers who were tempted into buying these products did not obtain independent advice from their financial advisers or accountants in relation to the potential risks involved.
It’s fair to say that a bank represents to its customer at the rate upon which the payments for their Forex products are based, were properly and honestly calculated. If the customer had been aware that the bank had been rigging their Forex rate for their own gain, in all likelihood the customer would not have entered into the contracts for the Forex hedging products in the first place.
This latest scandal will no doubt encourage institutional investors, large companies and pension funds to review what their losses may be from such Forex hedging products and on top of the significant fines which have been imposed, the banks caught out by the European Commission may well face claims for such losses from their customers.
If you or your business have been affected by the Forex scandal or you are bringing or defending a claim relating to financial mis-selling, look no further, our expert Business Services Team is here to help. Call Jonathan Dinsdale for a free initial discussion and to see how we can help you.