Key Points
- Regulatory fines on banks who manipulated foreign exchange benchmarks have globally exceeded $10 billion.
- Banks may be required to pay as much as $1.5 billion to settle ongoing class action litigation.
Background
Since news broke of the scandal in foreign exchange (“FX”) markets in June 2013, the accuracy of these allegations has been thoroughly investigated by regulators. More recent months have seen the first regulatory fines and private settlements. In November 2014, regulators fined six banks $4.3 billion for manipulating key benchmark FX rates, while U.S. class action settlements currently stand at just over $400 million. More recently, on May 20, 2015, additional regulatory fines of $5.6 billion were announced.
In this research alert, Fideres provides an overview of the current fines and settlements and considers what might be in store as the investigations and lawsuits develop further.
Overview of the Fines to Date
The above charts summarises the fines imposed on major FX dealers to date in respect of the manipulation of key benchmark FX rates. The figures are comprised of the fines imposed by the U.K.’s Financial Conduct Authority (“FCA”),1 the Commodity Futures Trading Commission (“CFTC”),2 the Office of the Comptroller of the Currency (“OCC”),3 the New York Department of Financial Services (“NYDFS”)4 and the U.S. Department of Justice (“DoJ”),5 as well as the settlements to date in the ongoing U.S. class action lawsuit.
Looking Forward
The value of the current class action settlements represents just a small portion of the total fines imposed by regulators and federal departments. However, it must be noted that at this point only 3 banks out of 12 have settled in the U.S. class action lawsuit. As such, we expect these settlement figures and, by extension, the amount of damages class members can reclaim, to grow as the case progresses.
As to just how much these settlement figures will increase, that is difficult to say. However, if we consider the market shares of the banks who have currently settled and assuming further settlements by the remaining defendants proportionate to their respective market shares, we estimate that the total settlements could amount to somewhere in the region of $1.5 billion.
Further to this, additional FX cases are currently on file in respect of allegations of manipulation of other key FX benchmark rates, e.g. for futures contracts. UBS have also recently been found to have engaged in spurious activity in the bid-ask spreads it charged its customers as well as in some of its proprietary currency indices that were sold to customers,6 a finding that may follow to other banks. As such, it is reasonable to expect the value of settlements and fines to rise further as the investigations continue.
Is such recourse sufficient to prevent banks from engaging in such activity in the future? That is a question that can only be answered with time.
Sources:
1 FCA Fines Five Banks £1.1 Billion for FX Failings And Announces Industry-Wide Remediation Programme and FCA Fines Barclays £284,432,000 for Forex Failings
2 CFTC Orders Five Banks to Pay over $1.4 Billion in Penalties for Attempted Manipulation of Foreign Exchange Benchmark Rates and Barclays to Pay $400 Million Penalty to Settle CFTC Charges of Attempted Manipulation and False Reporting of Foreign Exchange Benchmark Rates
3 OCC Fines Three Banks $950 Million for FX Trading Improprieties
In 2009, Alberto co-founded Fideres. As a partner, Alberto has mainly focused on developing market analyses and novel methodologies aimed at identifying anomalous or illicit behaviors such as: market manipulation, benchmark fixing manipulation, product mis-selling, anti-competitive conduct and discrimination conduct.
Since 2014 Alberto is the managing partner of Fideres Inc USA, Fideres’s US arm. Alberto has acted in an expert witness capacity in disputes involving banks and brokers, on one side, and institutional investors or consumers, on the other side. Examples of such disputes include mis-selling claims on complex financial derivative products and hedging solutions, LIBOR manipulation and fraud claims.
From 2005 to 2009, Alberto was head of Structured Products at the Royal Bank of Scotland in London, leading a team responsible for the structuring of synthetic credit derivatives products and customer driven solutions. In this capacity Alberto oversaw the development and execution of structured products such as CLOs, CDOs, credit default swaps, total return swaps.
From 2004 to 2005, Alberto led the Fixed Income team as Director, Head of Structuring at ABN AMRO. In this role, Alberto was responsible for the delivery of credit related solutions to institutional clients, for developing and executing regulatory capital and balance sheet solutions for global financial institutions, and for developing fund structure for the commercialization to private investors of structured products utilizing fund and insurance products platforms.
From 1997 to 2004, Alberto was at the UBS Limited as Fixed Income. Between 2003 and 2004 Alberto was Global Head of Structuring. In this role, Alberto led a team responsible for the Interest Rates and Credit Derivative Structured Products Desk.
Alberto began his career in New York, where he joined Credit Agricole in 1996 as an Associate in the Structured Products team.
Alberto holds two engineering Masters Degrees: from Ecole Centrale Paris, France and the Polythecnic of Turin, Italy. Alberto is fluent in Italian, French and Spanish.
