DOJ seeks Billions in Currency Manipulation Settlement Talks

Last year’s forex settlement may have just been the start of the fines from U.S. regulators for manipulating the currency market.

The Department of Justice and five banks are in discussions to resolve the U.S. Government’s investigation into currency manipulation at Barclays, Citigroup, JPMorgan, UBS and Royal Bank of Scotland. The DOJ is asking for an average of $1 billion from each bank in an coordinated settlement.

The Justice Department is also asking for guilty pleas from some of the banks for charges of antitrust violations and fraud.

In November, six banks paid worldwide regulators $4.3 billion for manipulation of benchmark rates in the forex markets. In the United States, the fines were levied by the Commodity Futures Trading Commission (CFTC) and the Office of the Comptroller of the Currency. Fines were also issued by the UK Financial Conduct Authority (FCA).

JPMorgan, Citigroup and Royal Bank of Scotland all participated in the November settlement and are facing additional fines.

The NY DFS Investigation

The New York Department of Financial Services is reportedly not a part of the most recent settlement talks. Last year, Barclays refused to settle with the FCA and the CFTC because the NY DFS would not also accept a settlement.

The NY DFS is reviewing Barclays and Deutsche Bank to determine whether the two banks used their forex trading algorithms to engage in currency manipulation. These banks may have designed their electronic trading programs to manipulate prices ahead of client trades.

New York has also subpoenaed Goldman Sachs, Credit Suisse, Societe Generale and BNP Paribas. They have not yet been accused of wrongdoing.

Investigation Leads to SEC Inquiry Into “Last Look” Policy

The currency investigation also uncovered a practice in the FX market known as last look. It allows the banks to back out of trades prior to execution if the market goes against them. It was developed during the era before computers when there was a substantial time lag before trades were confirmed. It remained in place even though the time lag disappeared in the electronic age. The “last look” is built into the Barclays electronic-trading platform, according to the reports.

The NY DFS has reportedly been pursuing this line of investigation. The SEC opened its own investigation to determine whether laws related to the disclosure of conflicts of interest are violated by the “last look” policy.  It’s unclear to what extent the DOJ investigation will include this practice.

Photo Credit: Philip Brewer.

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