Five banks walk into a bar, and by the end of the night they’ve racked up a $1.2 billion tab.
Unfortunately for the five banks, the outrageous bar tab is not simply the punch line of a bad joke. On May 16, 2019, the European Commission announced that it had fined five large, influential banks a collective €1.07B ($1.2B) for involvement in the manipulation of the foreign currency market.
Investigations revealed that individual traders at each of the banks had colluded with each other between 2007 and 2013 by sharing private information and trading strategies, thereby impacting one of the largest markets in the world. Rather than compete against each other, the traders worked together to manipulate the market in private chat rooms with names like “Two and a Half Men” and “Semi Grumpy Old Men.”
The existence of these foreign exchange cartels was made known when a sixth bank came forward to admit involvement with both groups. Said bank avoided subjection to fines because it was the first to disclose information regarding affiliation with the chat groups.
Two of the banks have already taken steps to prevent such activities in the future. Unfortunately, monitoring traders to prevent a similar situation in the future still presents an enormous challenge to compliance teams everywhere. The Forex spot traders in this situation colluded in private chat rooms. Some firms now routinely block everything but approved internet sites, and other firms are taking even stronger measures--such as banning personal devices on the trading floor-- in an effort to prevent any unmonitored activity. However, where there is a will to cheat, some people will always find a way. CCO’s might find their budgets better spent on tools that will help mitigate risk and increase efficiency*.
So, the joke didn’t elicit many laughs after all. But hey, we can’t all be comedians. Some of us are destined to become ex-Forex spot traders.
*Monitoring the trading desk is never easy, but IMP can help. For Best Practices in monitoring trade compliance, spotting trends and improving forensic testing, contact IMP.
