Citi unit fined $78.6M by U.K. regs for trading control failures

The Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA) announced the penalties Wednesday against Citigroup Global Markets Ltd. (CGML), an investment firm subsidiary of Citigroup.

In a press release, the FCA said it levied its fine of about £27.8 million (U.S. $35.4 million) because failures in the firm’s systems and controls allowed a trader’s erroneous order to enable $1.4 billion in equities improperly sold on the European market on one day in May 2022. The PRA, which levied a penalty of about £33.9 million (U.S. $43.2 million), said in a press release its investigation into the trading order error found deficiencies in the firm’s trading system and controls from April 2018 to May 2022.

The total penalties represented a 30 percent reduction, granted because CGML did not dispute either regulator’s findings and agreed to settle.

The details: On May 2, 2022, a CGML trader attempted to sell a basket of equities for $58 million but erroneously entered $444 billion of equities into the order management system, according to the FCA’s final notice.

CGML’s trading controls blocked $255 billion of the equities from being sold, but $189 billion was approved and sent to a trading algorithm. As a result of the error, a total of $1.4 billion in equities was sold across European markets before the trader canceled the order, which “coincided with a material short-term drop in some European indices which lasted a few minutes,” the FCA said.

Compliance considerations: The FCA noted there was no hard block in CGML’s trading controls that would have stopped the entire sale and that the trader was able to manually override a pop-up alert.

“The firm’s real-time monitoring was ineffective, which meant that it was too slow to escalate internal alerts about the erroneous trades,” the regulator said.

In its final notice, the PRA said it warned CGML in supervisory communication that the firm needed to strengthen its trading controls and that while the firm undertook remediation work on the issue, “weaknesses in trading controls persisted.”

“Deficiencies in CGML’s trading controls contributed to this incident, in particular the absence of certain preventative hard blocks and the inappropriate calibration of other controls,” the PRA said.

The PRA said CGML has undertaken further remediation to strengthen its trading controls.

Bank response: In an emailed statement, a spokesperson for Citi said, “We are pleased to resolve this matter from more than two years ago, which arose from an individual error that was identified and corrected within minutes. We immediately took steps to strengthen our systems and controls and remain committed to ensuring full regulatory compliance.”