Following a global investigation by the U.S., British, Swiss and European Union (EU) regulators into the alleged foreign exchange market manipulation, five major global banks have been slapped with a class action lawsuit in Australia. These banks have been accused of rigging prices in the $5.1 trillion-a-day foreign exchange market.
Barclays PLC (BCS - Free Report) , Citigroup (C - Free Report) , JPMorgan (JPM - Free Report) , UBS Group AG (UBS - Free Report) and Royal Bank of Scotland (RBS - Free Report) are the accused banks. The class action lawsuit was filed on Monday in the Federal Court by Maurice Blackburn Lawyers on behalf of local businesses and investors. None of the accused banks have come up with any statement yet.
Apart from Australia, global major banks have already faced up to $10 billion in penalties by the U.S., U.K. and Swiss regulators. Notably, after two years of penalizing the financial firms for collusion of LIBOR and Euribor rates, the EU also neared conclusion of its six-year long investigation for rigging prices earlier this month. Five global banks, including Barclays, Citigroup, JPMorgan, Mitsubishi UFJ Financial Group, Inc. (MUFG - Free Report) and Royal Bank of Scotland, were imposed a fine of around €1.07 billion ($1.2 billion) by EU antitrust regulators.
Probes & Allegations
Per the lawsuit, manipulation in currency markets by the five banks has impacted the Australian companies and investors, including importers, exporters, institutional investors and businesses with global operations. Law firm claims the impacted clients include those who purchased or sold more than A$500,000 ($347,000) of foreign currency between Jan 1 2008, and Oct 15, 2013.
Individual traders of the accused banks led the formation of cartels for manipulating the spot foreign exchange market for 11 currencies, which included the dollar, the euro and the pound. Per the accusations, traders colluded to set up chat rooms such as “The Cartel,” “The Bandits’ Club,” and “The Mafia.” The traders’ exchanging of information on their risk positions, sharing confidential data in the currency market pertaining to spot and future trades, as well as those related to volume of deal flow, and sometimes synchronizing their trading strategies, occurred between January 2008 and October 2013.
Currency market rigging is not new in the banking industry. Previously, some big banks were penalized for rigging LIBOR — a benchmark for credit card rates and other loans.
Globally, banks have faced more than $200 billion in penalties in recent years, following investigations into their shoddy malpractices, including interest-rate manipulation, violation of agreements and inadequate selling of a number of financial products.
Regulatory authorities are further investigating scandals related to foreign exchange rate fixing, and are determined to put forward a landmark judgment to terminate such practices in the future, bring justice to sufferers, and punish wrongdoers. While settlement of such issues will put to rest a long-drawn investigation and bring reprieve to the banks, this comes as a huge blow to their financials.
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