Banks caught up in the British investigation into alleged manipulation of global currency markets are pushing for a coordinated settlement that would reduce their exposure to potential reputational damage, banking and legal sources told Reuters. In the year since the scandal surfaced, regulatory authorities have yet to show proof of criminal activity or manipulation of benchmark exchange rates, the sources said, adding that a deal with Britain's top financial regulator could be agreed by the end of the year.
The sources said that a settlement with the Financial Conduct Authority (FCA) is now being sought on the basis of banks acknowledging lax internal compliance, oversight failures and market conduct breaches by individual employees, but not deliberate manipulation of the $5 trillion-a-day market. One source involved in the talks acknowledged that all sides are keen to wrap up the main part of the investigation, given how long it has been dragging on, and that the plan is to co-ordinate the settlements.
Two separate banking sources with knowledge of the investigation said a settlement could be reached this year, with one of them saying that it is likely be a coordinated agreement. Such a deal would see potential FCA fines levied bank by bank, recognising the differences between various types of misconduct and the degree of any wrongdoing, but with the watchdog announcing the settlements simultaneously, several sources said.
Among the banks co-operating with the watchdog's inquiries are Barclays, UBS, Deutsche Bank, J.P. Morgan, Citi and RBS, all of which declined to comment for this article, as did the FCA. "Regulators are moving quickly on this ... so a push towards a year-end resolution doesn't surprise me," the second source said. "But this is their investigation. It doesn't matter what we (the banks) think."
It is unclear how, or through what channels, the banks aim to achieve this common position, and there is no indication how amenable the FCA would be to such a proposal. Any agreement this year would represent a dramatic advance on previous FCA estimates of how long it would take to complete its investigation.
The regulator's chief executive, Martin Wheatley, said in February that he would be "surprised" if conclusions were drawn this year, while FCA head of enforcement Tracey McDermott told Reuters in April that the investigation was in a "relatively early stage" and that the FCA was "some way away from saying there was actually misconduct at all".
The sources said that a coordinated settlement with the FCA would not remove the wider global investigation's potential for later action from authorities such as the US Department of Justice (DoJ) and the European Commission, most likely to be on antitrust grounds. However, a collective settlement would help to insulate the banks from the potential for more severe punishment if they opted to go it alone and could also shield them from the kind of public backlash Barclays felt after the Libor scandal.
Barclays was fined a discounted $453 million by British and US authorities in 2012 because it came clean earlier than others in the rate-rigging scandal. But by doing so, the bank became the focal point for the public's anger, forcing the resignation of disgraced Chief Executive Bob Diamond. Given that the FCA and US authorities have been working together closely on the FX investigation, sources say that the banks hope that a simultaneous settlement could be reached with both regulators.
A Washington source familiar with the matter, offered little hope of that being achieved. It is hard enough getting one bank investigation over the finish line, so getting multiple regulators on the same page for a coordinated announcement could prove extremely difficult, the source said.
Banks have set aside billions of dollars to cover litigation costs and regulatory settlements, but estimates for the final cost vary wildly. Banking analysis company Autonomous Research pegs the figure as high as $35 billion, which would be almost six times the $6 billion paid out in Libor settlements. Regardless of collective agreements, the FCA, DOJ and other regulators around the world also have the power to charge individuals as and when they see fit. More than 30 currency operatives at several leading banks - including one at the Bank of England - have been suspended, placed on leave or fired as a dozen authorities have conducted their investigations.
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