January 29, 2019
DFS FINES STANDARD CHARTERED BANK $40 MILLION FOR ATTEMPTING TO RIG FOREIGN EXCHANGE TRANSACTIONS
Bank Admits Failing to Effectively Deter Illegal Trading Activities Between 2007 and 2013
Traders Used Chat Rooms, E-Mails and Other Communications to Improperly Share Confidential Information and Attempt to Manipulate Trades
Financial Services Superintendent Maria T. Vullo today announced that the New York Department of Financial Services (DFS) has fined Standard Chartered Bank $40 million for attempting to rig transactions in foreign exchange markets between 2007 and 2013. This consent order marks the last in a series of DFS consent orders that follow a detailed investigation of manipulation in the foreign exchange markets. With respect to today’s action, the investigation by DFS, 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 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,” Superintendent Vullo said. “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.
Today’s action follows previous fines totaling $3.14 billion that DFS has levied against Barclays Bank PLC, BNP Paribas, Credit Suisse, Deutsche Bank, and Goldman Sachs to resolve unlawful conduct in the foreign exchange trading business.
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.
DFS’s 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 nonpublic 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.
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 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 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.
A copy of the consent order can be found here.