Wednesday, 12 December, 2018

HSBC agrees US$101.5m settlement on currency rigging

FTSE 100 preview Index to open lower as US worries continue HSBC agrees US$101.5m settlement on currency rigging
Nellie Chapman | 20 January, 2018, 03:48

HSBC agreed last night to pay a $63.1m criminal penalty and $38.4m restitution over charges it engaged in a scheme to defraud two bank clients through a multi-million dollar scheme known as "front-running".

Europe's biggest bank has entered a three-year deferred prosecution agreement with the US Department of Justice (DoJ) in which it will stomach a $63.1m fine and pay $38.4m in restitution.

The scheme, which involved bankers executing trades that drove up costs for two large corporate clients, netted the bank more than $46 million in profits in 2010 and 2011.

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Europe's largest bank is no stranger to U.S. settlements.

The penalty has approached the bank just a month after it released from a five year deferred prosecution deal with the Justice Department for supporting Mexican drug cartels to launder money and violating worldwide sanctions through doing business with Iran.

Measures taken by HSBC to improve the control environment in its Global Markets division includes the implementation algorithmic trading to manage risk around benchmark orders, updating the policies for sales, pricing and order handling, and engaging with outside firms to audit its internal controls.

"The DoJ recognises these extensive improvements, noting that HSBC has dedicated significant resources to strengthening its systems and controls".

Johnson and Scott started buying pounds in the days before the agreement, expecting that those purchases and the Cairn Energy transaction will together lead to the rise in price of pound, a practice identified as "ramping".

As a result, the value of sterling surged to its highest level in two days on 7 December 2011, shortly before the 3pm deadline for the deal. The bank had previously settled for about $8 million with Cairn Energy. Cairn Energy hired HSBC to trade nearly $3.5 billion in takings of the sale to pounds. The lender has had a turbulent relationship with authorities.

HSBC was one of six major USA and European banks that were fined a total $4.2 billion by global regulators in a November 2014 crackdown for attempted manipulation of the foreign exchange market.