The fallout from the forex fines

Author: Alexander Wildschütz

Alexander Wildschütz, Partner, Fladgate LLP (


We’ve recently seen yet another round of substantial fines by regulators against banks. This time the £3.6bn of fines against banks are for the foreign exchange (forex) scandal, where the banks stand accused of rigging the forex market.

For most the impact of the forex scandal is not immediately obvious. We have set out an overview of the scandal and its potential fallout below.

The fix

The forex market is one in which currencies are bought and sold with traders speculating on the ever changing value of such currencies. It is a 24 hour market, which makes it difficult to value from day to day. A snapshot of its value at a specific time of day is therefore used by many to assess the market. One such snapshot is the London 4.00 p.m. fix on which the median rate of transactions in a 60 second window either side of 4pm is taken and used as a pricing benchmark.

Investigations into the forex market uncovered that traders could and did affect market prices for their own and their banks’ financial gain. Traders did this by working together, including with traders from different banks, and sharing confidential information about their clients’ orders and trading positions and by agreeing to place orders at certain times. By submitting a rush of orders during the window when the benchmark is set, e.g. during the London 4pm fix, they were able to alter the market’s view of supply and demand and so change the price.

The fines

Market regulators from different countries including the UK and USA have been investigating the forex market since 2013. Focus has been on evidence from chatrooms used by forex traders at different banks to share information regarding trades. These chatrooms with names including “The Cartel”, “The Bandits’ Club” and “The Mafia” appear to have been key.

In November 2014 the first round of fines was levied against banks by regulators including the UK’s Financial Conduct Authority and the US’ Commodity Futures Trading Commission. These were for the forex manipulation itself as well as for various systemic failures that had enabled the conduct, and totalled over £2.6bn.

Yesterday’s latest fines by the FCA and US authorities, including the US Department of Justice, total £3.6bn. Therefore, the total fines for the forex scandal against the banks, including Barclays, RBS, HSBC, JPMorgan Chase, Citigroup and UBS, now exceed £6bn.

These fines are staggering and are clearly an attempt by the regulators to penalise the banks whilst also deterring such conduct in the future.

The fallout

Whilst the fines are substantial, they are payments being made to the authorities and so have no direct relevance for individuals or businesses. However, they do still have potential consequences for such parties.

On the one hand, these fines are eroding the banks’ profits which reduce dividends for shareholders and, with less available funds, banks may be less able or inclined to lend to small businesses and individuals.

On the other hand, these fines, or more specifically the bad conduct being punished by these fines, may present both individuals and businesses with another line of attack against banks. Such matters could be raised as stand-alone causes of action or as part of claims already being made. For example, whilst the average traveller changing currency is unlikely to have been affected by the conduct, institutional investors and pension funds that speculate on the forex markets may have suffered specific losses and be able to seek redress. Alternatively other customers with bank products linked to forex rates may be able to take action.

Much will depend on the specific factual circumstances of each case and being able to show (i) the manipulation of rates by the bank in question and (ii) that this caused loss to the customer. Possible causes of action against the banks are likely to stem from breach of contract claims, misrepresentation allegations and various claims linked to the conspiracy and unlawful conduct elements of the traders’ actions.

Fladgate can assist in considering possible claims and advising on next steps.

As a final thought, the Chancellor, George Osborne, has previously used fines to contribute to military charities and other causes, so there may be a more obvious and immediate silver lining for some.

If you would like more information on the above, or any related matter, please contact a member of Fladgate’s banking and financial litigation team.

View by date:

View by author:

Would you like to hear more?