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Jacob Maslow
Jacob Maslow
Articles (124)  | Author's Website |

HSBC Fined for Forex Trading Practices

Company failed to prevent traders from misusing confidential data about trades

October 12, 2017 | About:

HSBC Holdings PLC (NYSE:HSBC) has been fined $175 million by the U.S. Federal Reserve Board for allegedly using unsafe practices in the foreign exchange market.

The Fed said it was fining the U.K.-based bank because it failed to prevent traders from using private customer information inappropriately and for revealing their trading positions to competitors.

HSBC's internal review found traders were trying to manipulate market prices and currency benchmark fixes by colluding with traders at competing banks. Traders also used confidential information to make trades that benefited the bank and hurt clients.

"The firm failed to detect and address its traders misusing confidential customer information, as well as using electronic chatrooms to communicate with competitors about their trading positions," the Fed said. "The board's order requires HSBC to improve its controls and compliance risk management concerning the firm's FX trading."

Along with the fine, the Fed has also ordered HSBC to make improvements to its oversight measures and take steps to meet risk management requirements in forex trading.

News of the fine comes just days after the start of Mark Johnson's trial, the former head of forex cash trading at HSBC bank. Johnson has been accused of exploiting confidential information from a client to bolster its $3.5 billion currency deal.

Johnson and Stuart Scott, a HSBC trader, used that information to buy sterling before the exchange, knowing it would drive up the price. Prosecutors say the collusion generated $3 million in profit for the bank and an additional $5 million in fees.

Both Johnson and Scott have been charged with conspiracy to commit wire fraud and an additional 10 counts of wire fraud.

Scott, who lives in London, is fighting attempts to have him extradited to the United States.

HSBC is not the only bank to be slapped with a fine from the Fed. Just two months ago, BNP Paribas (FRA:BNP) was fined $246 million for a similar violation.

Neither is this the first time HSBC has been fined for issues with forex trading. The bank was one of six fined by global regulators in 2014 for the attempted manipulation of the foreign exchange market.

On Friday, Deutsche Bank AG (NYSE:DB) came to a $190 million settlement as part of a class-action lawsuit that accused banks of manipulating foreign exchange markets over the past six years. HSBC was also named in that suit, and was part of the $2 billion settlement reached in 2015.

An estimated $3 trillion in currencies is traded daily, and those trades provide income to banks all over the world.

The bank also paid $1.9 billion in fines and charges in 2012 as part of a settlement with U.S. prosecutors. Officials alleged the bank was helping move money for the cartels and clients with ties to terrorist organizations.

The deal requires the bank to cooperate with U.S. law enforcement officials and avoid any other violations. The U.S. Justice Department may decide to extend the deferred prosecution agreement with the bank, which is set to expire in early 2018.

Disclosure: The author does not have any stakes in the listed equities.

About the author:

Jacob Maslow

Jacob Maslow is a writer and marketing specialist who began his career as a payroll manager. The same affinity for numbers that originally led him to an early career in accounting now comes in handy when it comes to understanding and working with marketing analytics.

A native of New York, Maslow is now based in the Middle East, where he lives with his wife and five children and provides high-quality services to clients in a variety of industries, including the legal, medical and financial sectors.

In addition to his marketing and consulting work, Maslow has founded a variety of news websites, including Legal Scoops. He is a frequent contributor to a variety of publications including business.com and business2community.com.

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