London - Global regulators imposed penalties totalling $3.4bn on five major banks, including UBS, HSBC and Citigroup on Wednesday in a landmark settlement over allegations of price fixing in the foreign exchange market.
The hefty fines, announced in London, Washington and Zurich, follow a worldwide probe into the scandal surrounding the forex market.
Royal Bank of Scotland and JP Morgan were also fined for attempting to manipulate foreign exchange benchmarks in a year-long probe that has put the largely unregulated $5trn-a-day market on a tighter leash, with dozens of dealers suspended or fired.
Switzerland's UBS swallowed the biggest penalty, paying $661m to Britain's Financial Services Authority (FCA) and the US Commodity Futures Trading Commission (CFTC) and ordered by the Swiss regulator Finma to hand over 134 million Swiss francs.
Finma also ordered Switzerland's largest bank to automate at least 95% of its global foreign exchange trading and limit bonuses for traders of foreign exchange and precious metals, where it said it had also found evidence of serious misconduct, to 200% of their base salary for two years.
Other bank employees who earn more than 200% of their base salary in bonuses will have to undergo an approval process.
Finma has started enforcement proceedings against 11 former and current employees of UBS.
"The FCA has imposed fines on five banks for failing to control business practices in their G10 spot foreign exchange (FX) trading operations," it said in a statement.
"The G10 spot FX market is a systemically important financial market. At the heart of today's action is our finding that the failings at these banks undermine confidence in the UK financial system and put its integrity at risk."
The FCA said that, between January 1 2008 and October 15 2013, it found that "ineffective controls" at the five banks allowed their G10 foreign exchange traders "to put their banks' interests ahead of those of their clients, other market participants and the wider UK financial system".
"The banks failed to manage obvious risks around confidentiality, conflicts of interest and trading conduct. These failings allowed traders at those banks to behave unacceptably. They shared information about clients' activities which they had been trusted to keep confidential and attempted to manipulate G10 spot FX currency rates, including in collusion with traders at other firms, in a way that could disadvantage those clients and the market," it said.
Barclays, a major player in the foreign exchange market, had been expected to be part of the settlement but the FCA said its investigation into the UK bank was continuing.
The UK regulator's first group settlement, worth more than $1.7bn, eclipses the £460m it has so far fined the industry for alleged interest rate manipulation, reflecting increasing political and public demands that banks - blamed for sparking the 2008 credit crisis - are held accountable and culpable for misconduct.
The US CFTC fined the five banks more than $1.4bn for attempted manipulation.
News of the fines was welcomed by the British government.
"Today we take tough action to clean up corruption by a few so that we have a financial system that works for everyone," said Finance Minister George Osborne.
"It's part of a long-term plan that is fixing what went wrong in Britain's banks and our economy. A number of traders have been suspended or fired, and the Serious Fraud Office are conducting criminal investigations. The banks that employed them face big fines - and I will ensure that these fines are used for the wider public good," he said.
The total FCA fine is a record amount and eclipses the penalty it handed down to banks and brokers over the 2012 Libor interbank rate-rigging scandal.
- Reuters, AFP