Major Bank Traders Discovered to Be Trading Info in Chat Rooms

Posted by Stephanie Mau

on November 14, 2014

Another Day, Another Few Billion Dollars in Fines

graphic concept red fingerprint on laptop screenYou’d think the biggest banks in the world would be a little more responsible these days.

I mean, six of them just had to pay $4.3 billion in fines for interest rate manipulation a couple years ago (see: the Libor scandal) and it was just this year that Bank of America, JP Morgan, and Citi paid tens of billions of dollars for fines related to the subprime mortgage crisis. (In fact, Whistleblower Security covered the story about the brave JP Morgan whistleblower who finally got to tell her side of the story earlier this week.)

But this week, a group of traders from major banks were caught in the latest financial scandal for manipulating the currency market – a market that deals with 5.3 trillion U.S. dollars each day.

Chat Room Business

These traders used online chat rooms to do all kinds of shady business – talking about protecting their inside information from outside sources and collecting confidential information on client trades.

One trader from HSBC complained that another trader within the group had not told them about a major order that could have been manipulated for their own good, saying: “u are uselees (sp.)… How can I make free money with no [expletive] heads up.”

Another was concerned about their own information leaking out to others in the market, speaking to the ‘we protect our own’ mentality that their group of illegal traders seemed to have: “[I] don’t want other numpty’s in mkt to know but not only that is he gonna protect us like we protect each other.”

In an investigation conducted by Britain’s Financial Conduct Authority (FCA), they reported that these groups of traders were highly exclusive, and entry into the groups was carefully controlled. They even had cute nicknames for themselves to foster a team identity, like “A team” and “the 3 musketeers.” (Ugh.)

These efforts were based around the “4 p.m. London WM/Reuters currency ‘fix,’” which determines the rates for different currency pairings. Banks usually make a profit with their client orders by buying a currency in the market at a lower rate than the rate it uses to sell to clients.

Sketchy traders can manipulate this fix rate to make an illegal buck, and in this case, they used chat rooms to share information about impending client order flows (which are usually supposed to be kept confidential).

Fraud Always Comes With a Price

After this all came to light, $3.25 billion of fines were imposed upon the Royal Bank of Scotland, which is owned by JP Morgan, Citi, HSBC, UBS, and the British taxpayer. $3.25 billion that could have been easily saved if someone had reported on these nefarious “musketeers” and their shady dealings a long time ago.

Whether your company is a small upstart or a huge corporation like JP Morgan Chase or HSBC, you should always have an effective compliance/diligence program in place with crystal-clear policies.

Having an independent ethics reporting system can be the key to solving all of your (potential) problems. Establishing a healthy whistleblower culture complete with a 24/7/365 whistleblower hotline can ensure that your employees feel safe and heard in the workplace at all times. Not only that, having a hotline available at all times can also save your business valuable time and money (okay, maybe not $3.25 billion though).

Spread the word #fraudhurtsbad

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Source: http://www.theglobeandmail.com/report-on-business/international-business/global-watchdogs-fine-5-major-banks-34-billion-in-foreign-exchange-probe/article21551567/