Big Fines Continue for Banks Over FX, Benchmark Rates

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The U.S. Government has handed down billions of dollars of fines to banks for manipulation of prices in the foreign exchange markets and benchmark interest rates already. We may have decreased our coverage of these investigation updates a bit over the past few months, but that doesn’t mean the government investigations aren’t continuing.

Citi Settles Benchmark Rate Investigations

In May, the CFTC added another $425 million to the total when Citi settled its civil investigation into the benchmark rate manipulation. It also looks like we can expect more fines of custody banks for improperly charging fees to customers in the foreign exchange market, with custody bank BNY Mellon paying $30 million to resolve an ongoing SEC investigation (over and above the existing settlement with other authorities) and State Street expected to pay more than $500 million.

The May Citi settlement was one of the first to resolve the government’s investigation into manipulation of the ISDAfix. Citi will pay $250 million to settle the civil charges. Last May, Barclays was the first to resolve the government’s investigation into ISDAfix manipulation with an agreement to pay $115 million.

The ISDAfix is a popular global benchmark rate for interest rate swaps. Seven banks including Bank of America, Barclays and Citigroup settled the investor lawsuits charging them with conspiring to manipulate the ISDAfix with a $324 million settlement at the beginning of May.

FX Custody Bank Fee Investigations Proceed

The Wall Street Journal reported in May that custody bank State Street is expected to pay more than $500 million to resolve federal investigations and customer lawsuits into its pricing of foreign exchange trades. Similar to the conduct resolved by BNY Mellon (described below), State Street reportedly told clients that it would execute their transactions at market prices but instead charged inflated fees. State Street set aside $585 million to cover the investigations and claims against it in June 2015.

This lawsuit got back on my radar today because BNY Mellon agreed to pay $30 million to the SEC over its pricing of foreign-exchange transactions to customers. This appears to be a legacy investigation that was unresolved during the announcement of the $714 million settlement in March 2015.