FCA fines and enforcement actions in 2014

On 20 November 2014 the FCA fined Royal Bank of Scotland, NatWest and Ulster Bank £42 million for the IT meltdown of June 2012, when a software compatibility problem in the banks' systems left more than 6.5 million UK customers unable to use online banking, see accurate balances at cash machines or make payments — in some cases for several weeks. The FCA found the immediate cause was a software compatibility problem, but the underlying failure was that the banks had not put in place adequate systems and controls to identify and manage their exposure to IT risk, breaching the rule that firms must organise and control their affairs responsibly. The banks settled at an early stage and received a 30% discount. In the first joint enforcement action of its kind, the Bank of England's Prudential Regulation Authority separately fined the banks £14 million for the same incident, taking the total to £56 million.

The FCA fined UBS AG £233,814,000 for serious control failures in its Zurich G10 spot foreign-exchange voice trading desk. Between 1 January 2008 and 15 October 2013 the bank failed to organise and control the desk properly (breaching Principle 3), allowing traders to try to manipulate WMR and ECB fix rates, attempt to trigger clients’ stop‑loss orders for UBS’s benefit, and share confidential client information with traders at other firms. The FCA’s Final Notice (11 November 2014) says UBS cooperated, had received whistleblowing reports and internal warnings, and was undertaking remediation and cultural changes; the notice also refers to UBS’s prior LIBOR/EURIBOR action in December 2012.

On 12 November 2014 the FCA fined The Royal Bank of Scotland £217 million as part of a record £1.1 billion settlement with five banks (RBS, Citibank, HSBC, JPMorgan Chase and UBS) over failings in their spot foreign exchange trading. Between 1 January 2008 and 15 October 2013 ineffective controls allowed traders to share confidential information about client orders in chat rooms and coordinate their trading to manipulate benchmark exchange rates, putting the banks' interests ahead of their clients and the wider financial system. RBS settled early and received a 30% discount; without it the fine would have been £310 million. The bank also paid $290 million to the US Commodity Futures Trading Commission the same day, suspended three employees and launched a review of the conduct of more than 50 current and former traders.

The FCA imposed a £37,745,000 penalty on Barclays Bank plc for failures in how it organised and controlled safe custody arrangements and for not arranging adequate protection for client safe custody assets. The breaches (of Principles 3 and 10 and multiple CASS rules) related to about £16.5bn of client safe custody assets held or arranged for between 1 November 2007 and 24 January 2012. Barclays qualified for a 30% early‑settlement discount, so the headline penalty was reduced from £53,921,619 to £37,745,000. The FCA said the failings left clients at risk of extra costs, lengthy delays or loss of assets had Barclays become insolvent during the Relevant Period.

On 28 July 2014 the FCA fined Lloyds Bank plc and Bank of Scotland plc a total of £105,000,000 (split £52.5m each), a figure discounted from an original aggregate penalty of £150,000,000 for early settlement. The FCA found the firms breached Principle 3 (firms must take reasonable care to organise and control their affairs) and Principle 5 (firms must observe proper standards of market conduct) by manipulating submissions used to calculate two benchmark reference rates — the sterling Repo Rate and LIBOR — in order to seek to influence those rates. The penalty and the settlement discount are recorded in the FCA final notice dated 28 July 2014.

On 28 July 2014 the Financial Conduct Authority imposed a combined £105,000,000 penalty on Lloyds Bank plc and Bank of Scotland plc for manipulating submissions to two benchmark rates (the Repo Rate and LIBOR), in breach of Principles 3 and 5. The penalty was split equally between the two firms (so £52,500,000 each) and was discounted from £150,000,000 for early settlement. Principle 5 requires firms to observe proper standards of market conduct; Principle 3 requires firms to take reasonable care to organise and control their affairs responsibly. The FCA final notice is linked below; the register entry does not state the exact period of the misconduct.

On 23 May 2014 the FCA fined Barclays Bank PLC £26,033,500 for breaches of Principles 3 and 8 relating to the London Gold Fixing. The FCA found that between 7 June 2004 and 21 March 2013 Barclays failed to manage conflicts of interest and had inadequate systems, controls, policies and training around staff participation in the Gold Fixing while the bank also sold options that referenced the fixed gold price. The regulator highlighted a specific incident on 28 June 2012 when a Barclays trader who was responsible for risk-managing a customer option participated in the 3:00pm Gold Fixing and placed orders intended to increase the chance the fix would be below a level, putting his interests ahead of the customer’s. The FCA noted Barclays did not formally record Gold Fixing orders until 5 February 2013 and did not identify Gold Fixing transactions separately from spot trades until 21 March 2013; the fine was reduced from £37,190,800 because of a Stage 1 settlement discount.

The FCA fined Forex Capital Markets Limited and FXCM Securities Limited (together “FXCM Ltd”) £4,000,000 on 24 February 2014 for breaching Principles 6 and 11. Between 1 August 2006 and 17 December 2010 FXCM Ltd treated customers unfairly by not passing on favourable price movements in rolling spot FX trades and instead retaining the benefit, reducing customers’ ability to profit. Between July 2010 and August 2011 the firm failed to be open and co‑operative by not disclosing to the FCA that US authorities had opened an investigation into the group and that the group later settled and paid redress for asymmetric pricing. FXCM settled at an early stage and received a 20% settlement discount (the uncapped penalty would have been £5,000,000).