US fines HSBC $175m over unsafe foreign exchange trading
29 Sep 2017

The US central bank on Friday fined HSBC $175 million for its ‘unsafe and unsound’ practices in its foreign exchange (FX) trading business.

The fine was issued “for deficiencies in HSBC’s oversight of, and internal controls over, FX traders” who deal US dollars and foreign currencies for the firm’s own accounts and for customers, the Federal Reserve said in a statement.

HSBC failed to detect and address its traders misusing confidential customer information, as well as using electronic chatrooms to communicate with competitors about their trading positions, it explained.

The order also requires HSBC to improve its controls and compliance risk management concerning the firm’s FX trading.

An HSBC spokesperson said in an emailed statement on Friday: ‘We are pleased to have resolved this matter.’

HSBC has previously landed in other regulatory trouble related to FX trading.

In 2014 it was fined £216m ($343m) by Britain’s Financial Conduct Authority, which found it and four other banks had failed to control business practices in their G10 foreign exchange trading operations.

The failings included allowing their traders to share information about clients’ activities which they had been trusted to keep confidential, as well as attempting to manipulate G10 spot FX currency rates in a way that could disadvantage clients and the market.

In 2012 HSBC was ordered to pay US authorities $1.9bn for failing to implement money laundering controls and for flouting sanctions.

Friday’s penalty is “a bit surprising considering the degree to which HSBC’s compliance has been supervised,” said New Jersey-based Gary M. Osen, managing partner at Osen LLC, “one would expect it has purportedly done a great deal to improve its controls.”

However it is usual for big banks to be facing fines while they are already under orders, he said. “It’s an on-going problem and always hard to judge from an outside perspective how much of that is corruption or a case of a large company [in the process of change].”

By Irene Madongo

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