The New York Department of Financial Services has fined Standard Chartered Bank $40 million for attempting to rig transactions in foreign exchange markets between 2007 and 2013, marking the last in a series of the DFS consent orders that follow a detailed investigation of manipulation in the foreign exchange markets.
The DFS investigation, as well as an internal review by the bank, found that bank traders used a range of illegal tactics to maximize profits or minimize losses at the expense of the bank’s customers or customers at other banks. Under the consent order with the DFS, Standard Chartered admitted that it failed to implement effective controls over its foreign exchange business, which is conducted at its London headquarters and in other global financial centers, including at its New York branch.
“The integrity of the global financial system is compromised when the hunger for profit leads bankers and traders to turn a blind eye to the kind of illicit activities uncovered by DFS’s broad investigation,” NYDFS Superintendent Maria Vullo said in a statement, announcing the fine on Jan. 29. “DFS appreciates Standard Chartered’s cooperation in this matter and the bank’s acknowledgement of its critical obligation to ensure that its business is conducted lawfully.”
The foreign exchange, or FX market, is the marketplace where banks and other financial entities seek to service customers and to profit by buying and selling foreign currencies. FX dealers profit when they quote narrow spreads between the bidding and asking prices in currency exchanges.
The action against Standard Chartered follows previous fines, totaling $3.14 billion, that the DFS has levied against Barclays Bank, BNP Paribas, Credit Suisse, Deutsche Bank, and Goldman Sachs to resolve unlawful conduct in the foreign exchange trading business.
The DFS’s investigation of Standard Chartered found that traders used chatrooms, e-mails, phone calls, and personal meetings to attempt to rig transactions. The illegal activities uncovered included:
- Coordination of trading and spreads among traders;
- Attempts to manipulate trading benchmarks;
- Sharing confidential customer information;
- Trading to move prices in certain markets; and
- Engaging in non-competitive agreements among traders on prices and spreads.
The misconduct occurred among salespeople and desk traders using “voice” trading through telephone and electronic communications to buy and sell currencies at Standard Chartered trading centers in such cities as New York and London. Between 2007 and 2013, traders based in New York and elsewhere joined traders at other locations in a chat room called “Old Gits.” The chat room was formed so they could coordinate trading, share confidential information and otherwise affect FX prices. One trader described the chat room to a new member as “a den of thieves.” Membership in the chat room was controlled by its members who voted on whether new members were trustworthy enough to join.
The DFS investigation found that traders regularly ignored guidance from regulators, as well as guidance from the bank itself, that was designed to protect client confidentiality and to avoid situations involving trading on non-public information. When questioned about sharing confidential information, a trader in New York admitted that he did so. One supervisor in New York admitted that he regularly participated in chat rooms where widespread and improper information-sharing occurred.
The DFS also found that Standard Chartered’s management failed to effectively supervise the bank’s FX business and ensure compliance with rules, regulations, and laws. The bank, which was attempting to grow its FX business – was slow to identify risks and develop policies and processes to govern the business and ensure compliance. The bank had few policies or training programs to guide staff about the line between proper and improper behavior.
The bank fully cooperated with the DFS, providing documents and trading records, including information about certain areas of the FX business on its own initiative. The bank also took disciplinary action, including termination of employees identified by the DFS as engaging in misconduct; other individuals resigned or were otherwise terminated for other reasons before disciplinary action related to trading could occur.
Under the consent order, Standard Chartered is obligated to submit enhanced written internal controls and compliance programs acceptable to the Department; improve its risk management program and establish an enhanced internal audit program. The bank agreed to provide the Department with ongoing progress reports on meeting the objectives.