Barclays to Pay $400 Million Penalty to Settle CFTC Charges 

• CFTC Also Took Action Today Against Barclays and its Affiliates for Attempted Manipulation and False Reporting of the ISDAFIX Benchmark, an Interest Rate Benchmark — the First Enforcement Action Addressing Abuse of ISDAFIX

• Barclays Has Now Been Subject to Three CFTC Enforcement Actions for Benchmark Rate Abuses (ISDAFIX, FX, and LIBOR) Imposing a Total of $715 Million in Penalties and Requiring Extensive Remediation

The U.S. Commodity Futures Trading Commission (CFTC) today issued an Order filing and settling charges against Barclays Bank PLC (Barclays) for attempted manipulation, false reporting, and aiding and abetting other banks’ attempts to manipulate, global foreign exchange (FX) benchmark rates to benefit the positions of certain traders.

This Order requires Barclays to pay a civil monetary penalty of $400 million, cease and desist from further violations, and take specified steps to implement and strengthen its internal controls and procedures, including the supervision of its FX traders, to ensure the integrity of its participation in the fixing of foreign exchange benchmark rates and internal and external communications by traders. The Order notes that the $400 million civil monetary penalty reflects in part that Barclays did not settle at an earlier stage of the investigation.

On November 11, 2014, the CFTC imposed $1.475 billion in civil monetary penalties against five banks for similar misconduct (see CFTC Press Release 7056-14): In re Citibank, N.A., CFTC Docket No. 15-03) ($310 Million penalty); In re JPMorgan Chase Bank, N.A., CFTC Docket No. 15-04) ($310 Million penalty); In re The Royal Bank of Scotland plc, CFTC Docket No. 15-05) ($290 Million penalty); In re UBS AG, CFTC Docket No. 15-06) ($290 Million penalty); In re HSBC Bank plc, CFTC Docket No. 15-07) ($275 Million penalty).

Aitan Goelman, the CFTC’s Director of Enforcement, stated: “Ensuring the integrity of our markets and the public’s faith in that integrity is a core mission of the CFTC. There is very little that is more damaging to the public’s faith in the integrity of our markets than a cabal of international banks working together to manipulate a widely-used benchmark in furtherance of their own narrow interests. The CFTC will continue to bring these cases until the public can be confident in the integrity of benchmark rates.”

According to the Order, one of the primary benchmarks that Barclays FX traders attempted to manipulate was the World Markets/Reuters Closing Spot Rates (WM/R Rates). The WM/R Rates, the most widely referenced FX benchmark rates in the United States and globally, are used to establish the relative values of different currencies, which reflect the rates at which one currency is exchanged for another currency. Another FX benchmark rate that a Barclays FX trader attempted to manipulate is the Russian Ruble/U.S. Dollar Chicago Mercantile Exchange (CME)/EMTA, Inc. benchmark rate (CME/EMTA Rate) that is based on indicative bids and offers submitted by banks to the CME, who calculates and issues the CME/EMTA Rate as well as publishes the submitted bids and offers of each participant.

FX benchmark rates, such as the WM/R Rates and the CME/EMTA Rate, are used for pricing of cross-currency swaps, foreign exchange swaps, spot transactions, forwards, options, futures and other financial derivative instruments. For example, the CME/EMTA Rate is the primary rate source for settling Russian Ruble non-deliverable forward transactions and the price used for calculation of the CME Russian Ruble futures final settlement price at termination. Accordingly, the integrity of the WM/R Rates and other FX benchmarks is critical to the integrity of the markets in the United States and around the world.

The Order finds that certain FX traders at Barclays and other banks coordinated their trading or indicative rate submissions to attempt to manipulate certain FX benchmark rates, including the WM/R 4 p.m. London fix and the CME/EMTA Rate, to their benefit. These FX traders at Barclays and the other banks used private chat rooms to communicate and plan their attempts to manipulate the FX benchmark rates. In these chat rooms, FX traders at the Banks disclosed confidential customer order information and trading positions, altered trading positions or CME/EMTA submissions to accommodate the interests of the collective group, and agreed on trading strategies as part of an effort by the group to attempt to manipulate certain FX benchmark rates. These chat rooms were sometimes exclusive and invitation only.

The Order also finds that Barclays failed to adequately assess the risks associated with its FX traders participating in the fixing of certain FX benchmark rates and lacked adequate internal controls in order to prevent improper communications by traders. In addition, Barclays lacked sufficient policies, procedures and training specifically governing participation in trading and submission of indicative rates around the FX benchmarks rates; and Barclays had inadequate policies pertaining to, or insufficient oversight of, its FX traders’ use of chat rooms or other electronic messaging.

Some of this conduct occurred during the same period that the CFTC and other regulators were investigating attempts by certain banks, including Barclays, to manipulate the London Interbank Offered Rate (LIBOR) and other interest rate benchmarks. The Commission took enforcement action against Barclays in connection with LIBOR in June 2012. Today, in addition to the charges related to Barclays’ misconduct in FX benchmark rates, the Commission took enforcement action against Barclays and its affiliates on the same charges relating to abuses of the ISDAFIX benchmark. (See information below.)

The Order recognizes the significant cooperation of Barclays during the CFTC’s Division of Enforcement’s investigation of this matter.

The CFTC thanks and acknowledges the invaluable assistance of the U.S. Department of Justice, the Federal Bureau of Investigation, the Board of Governors of the Federal Reserve System, the New York Department of Financial Services, and the U.K. Financial Conduct Authority.

CFTC Division of Enforcement staff members responsible for these cases are Robert Howell, Melissa Glasbrenner, Heather Johnson, Jordon Grimm, David Chu, Elizabeth Streit, and Gretchen Lowe.

Source: CFTC – Barclays to Pay $400 Million Penalty to Settle CFTC Charges of Attempted Manipulation and False Reporting of Foreign Exchange Benchmark Rates

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