Bloomberg News
The Federal Reserve Board of Governors ended an eight-year-old cease-and-desist order against Citigroup on Thursday.
The order stems from Citibank’s involvement in a multiyear scheme in which spot market traders on its foreign exchange, or FX, desk colluded with their counterparts at other banks to game currency markets.
The Fed’s enforcement action — which included enhanced oversight and reporting requirements along with a $342 million civil penalty — was imposed on May 20, 2015. That same day, Citi joined four other major banks in pleading guilty to felony counts of conspiring to manipulate dollar and euro prices.
In its order, the Fed cited insufficient oversight and controls at the New York-based megabank for identifying and mitigating risks on its FX trading desk.
From 2007 to 2013, FX traders at Citi worked secretly with traders at JPMorgan Chase, Barclays and The Royal Bank of Scotland, according to the U.S. Department of Justice. Traders at the banks used an electronic chat room and coded language to alter benchmark exchange rates between dollars and euros for their own benefit. The Swiss bank UBS also pleaded guilty for separate but related charges.
Bank of America and HSBC were also penalized by U.S. regulators for FX trading issues and faced separate criminal charges around the same time. The investigations into the banks and their subsequent penalties came at a time of increased regulatory scrutiny toward currency trading businesses in the wake of the subprime mortgage crisis and ensuing global financial distress.
According to their guilty pleas, Citi, JPMorgan, Barclays and RBS worked with one another to, at times, bump up benchmark exchange rates just ahead of daily rate fixes being set in Europe and the U.S. to maximize profits. They would also withhold transactions to depress prices at times that were advantageous to their co-conspirators.
Collectively, the five institutions — Citi, JPMorgan, Barclays, RBS and UBS — also had to pay more than $2.5 billion in criminal fines, with Citi bearing the brunt of that load with a $925 million fine.
In late 2014, before the criminal part of the investigation concluded, Citi faced penalties from several other regulators. The Office of the Comptroller of the Currency imposed a $350 million fine and Citi had to pay $310 million to the Commodity Futures Trading Commission related to the scandal. The bank also reached a £225 million, or $358 million, settlement with the U.K.’s Financial Conduct Authority.
The Fed’s enforcement action noted that the bank’s lackluster FX controls failed to catch a litany of improper activities. These included sharing confidential customer information, devising strategies that created conflicts of interest and making agreements with other banks that could have influenced bid-offer spreads offered to customers.
As a result of the order, Citi had to devise a plan for improving its oversight of certain market activities; it had to come up with a program for enhancing its internal controls and compliance; it had to conduct an internal audit of its existing compliance program; and it had to provide the Fed with regular progress reports. Citi was also banned from employing any of the traders involved in the FX scandal.
The consent order is just one of several compliance issues Citi has been facing over the last decade. In 2020 the bank was fined $400 million by the Office of the Comptroller of the Currency over what the regulator deemed insufficient anti-money-laundering controls, coming on top of another $120 million fine related to AML deficiencies at Citi’s former subsidiary Banamex and a slew of other AML-related consent orders.
