LONDON—Five banks agreed Wednesday to pay a total of about $3.3 billion to U.S., British and Swiss regulators to resolve allegations that for years they worked together to try to manipulate the vast foreign-exchange market to boost their profits.
The settlements indicate that the banks were engaged in activities designed to move one of the world’s largest and most interconnected markets, sometimes at the expense of their clients. Even though some bank employees blew the whistle on the behavior years ago, the misconduct persisted until 2013, after banks were punished for trying to manipulate other financial benchmarks.
The U.K.’s Financial Conduct Authority and the U.S. Commodity Futures Trading Commission reached settlements with HSBC Holdings PLC, Royal Bank of Scotland Group PLC, UBS AG , Citigroup Inc. and J.P. Morgan Chase & Co. The CFTC settlementwas for a total of about $1.4 billion, while the FCA portion was £1.1 billion ($1.75 billion).
Swiss markets regulator Finma separately ordered UBS to pay 134 million Swiss francs ($139 million) to settle its probe. The Swiss regulator is also capping the variable compensation of UBS’s foreign-exchange and precious-metals staff to 200% of base salary for two years, obliging the bank to automate at least 95% of its foreign-exchange trading and appointing a third party to ensure it sticks to the rules. Finma added that it was investigating 11 current and former UBS employees.
Barclays PLC, which had been in late-stage settlement talks with both regulators, pulled out at the last minute. The bank said in a statement that it had considered a settlement on similar terms to those announced Wednesday but that it had decided to seek a “more general coordinated settlement.” Barclays is being investigated by New York regulators as well as the U.S. Justice Department, and concerns about the New York probe prompted it to back out of Wednesday’s settlement, according to people familiar with the matter.
The CFTC and FCA laid out what they said was a wide-ranging and long-running campaign by some of the world’s biggest currencies-dealing banks to put their own interests ahead of those of clients, sometimes endangering the market’s integrity.
The misconduct fell into at least three camps, the regulators said. Working as a pack, banks tried to manipulate a currencies benchmark that is widely used to set foreign-exchange rates across the industry and asset classes. The banks attempted to trigger so-called stop-loss orders with clients in a way to goose the banks’ trading profits. And in electronic chat-rooms known by terms including “the 3 musketeers,” the banks allowed traders to inappropriately share confidential information about their customers, including their identities and the trades that they were looking to transact.
The settlement agreements published Wednesday offer glimpses of bank traders communicating with each other in electronic chat-rooms and other venues in ways that authorities say were improper. In one undated chat, an unidentified Citigroup trader told traders at rival banks that they “dont want other numpty’s in mkt to know” about information exchanged within the group, using a British term for a foolish person. The Citigroup trader added that the group needed to ensure that any new entrants to the chat room are “gonna protect us like we protect each other…”
The activity stretched back into the previous decade and, more important, continued until fairly recently. The FCA said it detected problems as recently as October 2013. That is more than a year after U.S. and British authorities started punishing banks for their roles in trying to rig the London interbank offered rate, or Libor.
The banks didn’t dispute the regulators’ findings. Several of the banks said Wednesday that they were troubled by their own misconduct and vowed to take wide-ranging actions—including dismissing employees who were involved—to rectify the problems. RBS said it is now “reviewing the conduct of over 50 current and former members of trading staff around the world as well as dozens of supervisors and senior management.”
The Bank of England said Wednesday that it wasn’t involved in any improper activity in the currencies market, but a spokesperson said the central bank had dismissed its chief currencies dealer, Martin Mallett, for breaching internal policies. The findings of an independent review released by the central bank Wednesday found that one of its officials was aware that bank traders were sharing client information with each other in a way that may unnerve regulators. The information-sharing “is not necessarily improper, but can increase the potential for improper conduct,” the central bank’s oversight committee concluded in a report on its review of what the Bank of England knew about industry practices.
The investigation into the banks also indicated that some lenders missed opportunities to detect the misconduct. At UBS, for example, whistleblowers started complaining internally about the bank’s foreign-exchange-trading practices starting in November 2010, according to the FCA. The complaints kept rolling in for a few years from multiple whistleblowers, but the Swiss bank failed to adequately investigate the complaints, the FCA said.
In a March 2012 phone call, the transcript of which was released by the Bank of England on Wednesday, UBS trader Niall O’Riordan told the Bank of England’s Mr. Mallett about “the shenanigans that could possibly go on” surrounding currencies benchmarks. Mr. O’Riordan added that UBS compliance and legal officials previously had expressed misgivings about how traders from rival banks were communicating with each other. One UBS compliance official had “noticed that there was a whole cartel of ruble traders” discussing planned trades, Mr. O’Riordan said.
Messrs. O’Riordan and Mallett couldn’t be reached for comment.
The settlements are the latest in a series of increasingly tough financial penalties against banks. Lenders have racked up tens of billions of dollars in penalties in recent years stemming from investigations into interest-rate manipulation, sanctions violations, andimproperly selling a variety of financial products.
Wednesday’s deal is a rare example of regulators simultaneously settling allegations with multiple banks. Regulators are hoping to avoid a protracted settlement process that drags on for many years—the continuing investigation into manipulation of benchmark interest rates is approaching its seven-year anniversary. Banks, meanwhile, are eager to enter a group settlement that will avoid any one institution being singled out.
That setup has prompted criticism. The U.S. Justice Department and New York’s financial regulator, for example, are sitting out of Wednesday’s deal, and the latter has complained about the possibility of it giving banks a “sweetheart deal.” Prosecutors at the U.K.’s Serious Fraud Office also have said they are looking into a criminal case.
The investigation into possible manipulation of foreign-exchange markets began in spring 2013 when the FCA started looking into allegations of wrongdoing. The probe initially focused on a key industry benchmark—the so-called fix calculated daily by WM/Reuters—but quickly mushroomed into an industrywide investigation that also dug into personal trading by bank employees.
FCA officials said Wednesday that, except for their continuing investigation into Barclays, the agency is done with its foreign-exchange case. That is good news for Deutsche Bank AG, whose executives received word Wednesday morning that they are no longer under U.K. investigation, although the bank still faces U.S. and German probes.
Even before Wednesday’s settlement, the investigation has had ripple effects. Many banks have banned their employees from communicating with rivals via electronic-chat programs. Banks including UBS have restricted their employees from trading in their own accounts and from using mobile phones on the trading floor.
More than 30 traders, including some from all banks involved in Wednesday’s settlement, have been fired or suspended as part of the probe.
Some of those individuals are still facing criminal investigations in the U.S. and U.K., which aren’t likely to wrap up until at least next year, according to people familiar with the matter.
—John Letzing, Margot Patrick and Max Colchester contributed to this article.