Five banks to pay $US5.6bn for manipulating markets

Five global banks have agreed to pay $US5.7 billion in combined fines for charges including manipulating the foreign exchange market.

Four of the banks - JPMorgan, Barclays, Citigroup and RBS (Royal Bank of Scotland) - have agreed to plead guilty to US criminal charges.

The fifth, UBS, will plead guilty to rigging Libor benchmark interest rates .

Barclays was fined the most, $US2.4 billion, as it did not join other banks in November to settle investigations by UK, US and Swiss regulators.

Barclays is also sacking eight employees involved in the scheme.

US Attorney General Loretta Lynch says "almost every day" for five years from 2007, currency traders used a private electronic chatroom to manipulate exchange rates in the $US 500 million-a-day market for dollars and euros.

Their actions harmed "countless consumers, investors and institutions around the world", she says.

Separately, the US Federal Reserve fined a sixth bank, Bank of America, $US205 million over foreign exchange-rigging. All the other banks were fined by both the Department of Justice and the Federal Reserve.

How the scam worked
Regulators say that between 2008 and 2012, several traders formed a cartel and used chatrooms to manipulate prices in their favour.

Several strategies were used to manipulate prices and a common scheme was to influence prices around the daily fixing of currency levels.

A daily exchange rate fix is held to help businesses and investors value their multi-currency assets and liabilities.

Until February, this happened every day in the 30 seconds before and after 16:00 in London and the result is known as the 4pm fix..

In a scheme known as "building ammo", a single trader would amass a large position in a currency and, just before or during the fix, would exit that position.
Other members of the cartel would be aware of the plan and would be able to profit.

Fines set records
The fines break a number of records. The criminal fines of more than $US2.5 billion are the largest set of anti-trust fines obtained by the US Department of Justice.

The £284 million fine imposed on Barclays by the UK Financial Conduct Authority is a record by the regulator.

Meanwhile, the $US925 million fine imposed on Citigroup by the US Department of Justice is the biggest penalty for breaking the Sherman Act, which covers competition law.

The guilty pleas from the banks are seen as highly significant as banks have settled previous investigations without an admission of guilt.

Attorney General Lynch has warned further wrongdoing will be taken extremely seriously.

"The Department of Justice will not hesitate to file criminal charges for financial institutions that re-offend,” she says..

"Banks that cannot or will not clean up their act need to understand - it will be enforced."

The guilty pleas won't disrupt the banks' operations and the two American ones, JP Morgan and Citigroup, have waivers from US regulators to continue doing business.

Some have blamed the conduct on small groups of traders and say the problems aren't systemic.