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BNP Fined $246MM After Its Traders Were Found To Still Use Chat Rooms To Rig FX Trading

Two months after the Fed fined Deutsche Bank a paltry $157 million for manipulating currency markets after the German bank's traders were found to be using "chat rooms" to rig FX trading, we learn that there was more gambling going on here, and on Monday the Fed announced that it will fine French BNP Paribas $246 million "for the firm's unsafe and unsound practices in the foreign exchange (FX) markets."

According to the press release, the Board levied the fine "after finding deficiencies in BNP Paribas's oversight of, and internal controls over, FX traders who buy and sell U.S. dollars and foreign currencies for the firm's own accounts and for customers." And, not surprisingly we once again find that FX rigging was confined chat rooms:

"The firm failed to detect and address that its traders used electronic chatrooms to communicate with competitors about their trading positions. The Board's order requires BNP Paribas to improve its senior management oversight and controls relating to the firm's FX trading."

Perhaps one day the Fed will realize that as long as its keep settling for paltry amounts that are a fraction of how much the banks make by violating the rules (and yes, participating in chat rooms), this type of behavior will never end. That day won't be today.

In its complaint, the Fed notes that during the Review Period:

  • BNPP and BNPP Securities lacked adequate governance, risk management,
    compliance, and audit policies and procedures to ensure that BNPP’s Covered FX Activities
    complied with safe and sound banking practices and applicable internal policies;
  • Certain FX traders in the spot market at BNPP, including BNPP Securities routinely communicated with FX traders at other financial institutions through chatrooms on
    electronic messaging platforms accessible by traders at multiple institutions
    .
  • BNPP’s deficient policies and procedures prevented it from detecting and
    addressing unsafe and unsound conduct by certain FX traders, including in communications by
    traders in multibank chatrooms, consisting of:
    • (i) disclosures of trading positions and discussions of coordinated trading
      strategies with traders of other institutions;
    • (ii) discussions about anticipated FX benchmark fix-related trading and
      submissions with traders of other institutions;
    • (iii) disclosures to traders of other institutions of confidential customer
      information of BNPP;
    • (iv) discussions regarding bid/offer spreads offered to FX customers with
      traders of other institutions; and
    • (v) discussions of trading in a manner to trigger or defend certain FX barrier
      options within BNPP, in order to benefit BNPP.

Today's action is a follow up to the Fed's previous injunection from January 2017 in which the "regulator" permanently prohibited former BNP Paribas trader Jason Katz from participating in the banking industry for his manipulation of FX prices. Here is a blurb from Katz' admission in early Januar, courtesy of Bloomberg

Jason Katz, a former Barclays Plc currency trader, admitted conspiring to fix prices in the foreign-exchange market, the third individual to be charged and the first to plead guilty in a long-running U.S. criminal investigation into the rigging of currency rates.

 

Katz appeared in Manhattan federal court Wednesday, where he admitted to participating in a conspiracy with other bankers to manipulate emerging-market currency trades while working at three different financial institutions from 2007 to 2013. Separately, the Federal Reserve Board said it banned Katz from the banking industry.

 

Katz was released on a $150,000 bond to be secured by property in New York’s Delaware County. His travel is limited to New York, Connecticut and London until April 1 when he is to turn over his passport and remain in the U.S.

Before BNP, Katz spent a year as director of emerging markets-foreign exchange trading at Barclays beginning in 2010, according to regulatory filings and his previous LinkedIn profile; his current one has been duly scrubbed. Katz joined BNP Paribas in September 2011 as its director of emerging markets-foreign exchange trading, before leaving for Australia & New Zealand Banking Group Ltd. two years later, the documents show. Before joining Barclays, Katz spent more than nine years at Standard Bank, where he was head of foreign exchange, according to his LinkedIn profile.

While the Fed said that BNP has agreed to assist the Board of Governors in the supervision of
this Order, it is becoming obvious even to lay people that as long as the Fed keeps its penalties at the "laughable" level, nothing ever will change in the FX market. Adding to the irony, today's penalty comes one day after RBA Deputy Governor Guy Debelle said in an interview with The Australian that "banks that don’t sign up to a new global code of conduct for the foreign exchange market will be barred from dealing with central banks and other signatories to the code."

"Certainly they will need to sign up within 12 months, otherwise we, as central banks, will stop dealing with them," Debelle says adding that there are positive signs that banks are already improving their behavior.

Today's settlement is hardly evidence of that.