Bank of England launches inquiry into forex manipulation claims

Senior currency trader says Bank officials condoned information sharing between traders under investigation

The Bank of England has launched an internal inquiry into allegations that its officials endorsed sharing of information between traders in the foreign exchange market, the central bank's deputy governor told MPs.

The inquiry will examine claims that at a meeting between Bank officials and senior currency traders last April the officials said it was permissible for traders in different banks to share information about clients' positions ahead of the setting of a benchmark rate in the foreign exchange market.

Andrew Bailey told the Treasury select committee: "The governors of the Bank have taken the claims about the meeting with the Bank's officials extremely seriously since we first heard about these allegations. Just so you know, we first heard about them in October.

"The governors immediately initiated a full review into it led by the Bank of England's legal counsel but also supported by external legal counsel and also in close collaboration with the FCA [financial conduct authority]."

Bailey, who is in charge of supervising financial firms, said the Bank had found no evidence that officials had endorsed sharing of information but added: "We do not regard that review as over."

Bloomberg News reported last week that a senior currency trader had informed the financial conduct authority that Bank staff at the April meeting had condoned information sharing. Alleged collusion in setting benchmark rates in the foreign exchange market is at the centre of allegations of market manipulation that could be as big as the Libor scandal.

Bailey said the Bank's inquiry had not yet seen the anonymous trader's notes from the meeting.

Bailey agreed with committee member Pat McFadden that if true the allegations would be "extremely damaging" to the Bank's reputation.

"I agree with you on that. That is why we have set up this investigation and this process," Bailey said. "The governors take the whole question of the reputation and integrity of the central bank extremely seriously. It's the most important thing we have."

The benchmark in question is used to price a wide variety of financial products and is the subject of regulators' attention amid allegations that traders at rival banks were sharing information about their orders from clients to manipulate the price.

A record of the April meeting released by the Bank showed it was chaired by Martin Mallett, its chief currency dealer, and included an entry entitled "extra item". The record says: "Processes around fixes. There was a brief discussion on extra levels of compliance that many bank trading desks were subject to when managing client risks around the main set-piece benchmark fixings."

Martin Wheatley, chief executive of the FCA, which is in charge of stamping out market abuse, told MPs last week that the allegations were "every bit as bad" as those surrounding Libor. Banks have been fined billions of pounds over the Libor scandal.

The meeting was between senior traders at investment banks and a subcommittee of the Bank's foreign exchange standing committee. Bloomberg was told that during a 15-minute conversation about currency benchmarks traders said they used chat rooms to match buyers and sellers ahead of the one-minute period when rates were fixed to avoid trading at a volatile time.

The officials are alleged to have said the practice might benefit markets because it made them more stable.

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Barclays hikes bonuses amid warning on jobs and fall in profits

Bonuses for investment bankers rise to £1.6bn despite fall in profits and warning of up to 12,000 job cuts this year

Barclays stoked the row over City pay on Tuesday by announcing a 32% fall in profits but a rise of 10% in the bonus pool for its 140,000 staff around the world.

Antony Jenkins, promoted to run Barclays in the wake of the £290m fine for rigging Libor, defended the decision to increase bonus payouts as he warned that between 10,000 to 12,000 jobs would be cut this year as he races to cut costs. Some 820 senior roles are to go along with 7,000 jobs in the UK.

In a move that sparked the fury of the TUC, which accused the bank of "sticking two fingers up to hard-pressed families across Britain", the bank announced it was paying bonuses of £2.4bn – up from £2.2bn a year ago – across the bank. Within that, the investment bankers enjoyed bonuses of £1.6bn compared with £1.4bn a year ago, even though the investment banking side suffered a loss in the fourth quarter and its annual profits tumbled 37%. The bank as a whole saw its profits fall to £5.2bn from £7bn.

Labour seized upon the numbers to call for a reintroduction of the bonus tax which Cathy Jamieson, shadow financial secretary to the Treasury, said "could fund a paid job for every young person out of work for 12 months or more, which they would have to take up or lose benefits".

The profit figures, announced 24 hours earlier than scheduled, on Monday, because of a fears of a leak, showed that on a statutory basis – including accounting quirks and other one-off items – the profits rose to £2.9bn. This was also the year that the bank tapped shareholders for £5.8bn.

Jenkins admitted that he only discovered the theft of confidential customer files – 2,000 names, addresses, phone numbers, passport numbers and details of personal finances – which is now the subject of regulatory scrutiny, after being informed of the loss by the Mail of Sunday. Only 300 of the 2,000 individuals affected have been contacted by the bank.

Frances O'Grady, general secretary of the TUC, said: "Today Barclays has stuck two fingers up to hard-pressed families across Britain by announcing another multi-billion pound bonus pool". In reference to the EU's cap on bonuses to 100% of salary, O'Grady added: "But rather than tackle the damaging City bonus culture, the Chancellor has been to Brussels to defend their greed".

Jenkin justified the hike in bonuses – despite his pledge to show pay restraint and waiving his own £2.75m bonus – by insisting the bank needed to pay staff in a globally competitive environment. He also insisted the bank was acting within the "spirit and letter" of the law by paying monthly role-based allowanced to key staff who might otherwise take pay cuts as a result of the bonus cap.

"We employ people from Singapore to San Francisco. We compete in global markets for talent. If we are to act in the best interests of our shareholders, we have to make sure we have the best people in the firm," Jenkins said.

"At Barclays we believe in paying for performance and paying competitively. Ensuring that we have the right people in the right roles serving our customers and clients effectively in a highly competitive global environment is vital to our ability to generate sustainable shareholder returns," he said.

"After careful consideration, we determined that an increase of £210m over the prior year in the incentive pool was required in 2013 in order to build our franchise in the long term interests of shareholders."

Even though the bank tapped shareholders for £5.8bn of fresh funds last year under instruction from the Bank of England, the average bonus per staff member was £17,000 up from £15,600 while the average investment banker received £60,100 up from £54,500.

Jenkins, who has set out to make Barclays the "go to" bank, has forced every staff member to embark on ethics training and set out eight new goals against staff will be measured in the future. One of his targets is increasing the number of senior women from 21% to 26% by 2018.

Jenkins regularly describes the changes that technology will impose on the banking industry - he is thought to believe that as many as 40,000 roles could eventually go from the 140,000 workforce - and on Tuesday described a "one in a hundred year transformation" of the industry. Half of the 7,000 of the jobs being axed in the UK have already been announced and branches are eventually expected to close.

He insisted that bonuses were down from 2010 by 32%.

The bank is fighting a £50m fine from the Financial Conduct Authority for discloses it make during the time of a crucial funding raising in 2008 but said this process had now been stayed while the Serious Fraud Office investigated.

The dividend for the year is 6.5p, the same as last year. The shares were down 2% at 269p in early trading.

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Barclays blasted over 'catastrophic' theft of thousands of customer files

Barclays is under scrutiny by regulators and could face a hefty fine after thousands of confidential customer files were stolen in a data breach described as catastrophic by an adviser to the business secretary, Vince Cable.

The files, containing details on 2,000 individuals including their names, addresses, phone numbers, passport numbers, mortgages and levels of savings, were allegedly sold for use in boiler-room scams, in which vulnerable savers are snared into fraudulent investments.

"This is catastrophic, just awful," the Liberal Democrat MP Tessa Munt, who is parliamentary private secretary to Cable and has campaigned on mis-selling by banks, told the Guardian. "What protections have Barclays got in place? Are the police going to pursue this, are they going to prosecute, and is someone going to go to jail for this? They should do."

"We are learning not to trust our banks and that is a pretty sad thing. It is a culture of just make money in any way and that probably breeds a contempt among those who are bankers towards those they are meant to serve."

Barclays said it would be writing to the customers concerned. The bank, which claims not all of the individuals named in the files were its customers, has begun an immediate internal inquiry and reported the theft to the police and to regulators.

The Financial Conduct Authority (FCA), which can impose unlimited fines, and the information commissioner, who oversees data protection and can fine organisations up to £500,000, are looking into the matter.

"Barclays have contacted us and we will be working with them to understand exactly what has happened and what steps consumers may need to take," a spokeswoman for the FCA said.

"Consumers rightly presume their data is safe with their bank, and this should serve to remind all firms how important it is they have the correct procedures in place to ensure data is secure and used appropriately. We will continue to investigate the issue with Barclays over the coming days."

The security breach was first reported by the Mail on Sunday, which was approached by a whistleblower who claimed the files were just a sample from a haul of stolen data containing the details of 27,000 individuals. The whistleblower said he was prepared to give evidence to police, and claimed he was given the data to sell on by an unnamed firm of rogue brokers whom he worked with.

The memory stick he handed over also contained national insurance numbers, details on dependants and highly personal information on whether people had undergone surgery or were on medication. Those affected include doctors, scientists, business people, a musician and a cleaner.

They are believed to have been customers of the now defunct Barclays Financial Planning business, which was fined £7.7m in 2011 and ordered to pay up to £59m in compensation for mis-selling investment funds to more than 12,000 customers.

Like those Barclays customers affected by the mis-selling scandal, many of those whose names appear on the stolen files are elderly. The whistleblower said the information was used to scam about 1,000 people, who were persuaded to invest in rare earth metals that did not exist. Between December 2012 and September 2013, a select group of brokers at the firm concerned were given the files, which they used to cold call their victims.

These were customers who had originally sought financial advice from Barclays. As part of consultations with advisers, they filled out questionnaires about their savings, physical health and revealed their attitude to risk using psychometric tests.

"The data is a gold mine for traders because it is so incredibly detailed. It gets them inside the customer's head," said the whistleblower. He added: "This illegal trade is going on all the time in the City. I want to go public to stop it getting bigger."

He described a world in which scammers worked from so-called "spank shops", renting offices and peddling products that were either fraudulent or sold at inflated prices to unsuspecting, often elderly or inexperienced investors.

With interest rates at an all-time low since the banking collapse, people have been withdrawing their money from the comparative safety of savings accounts chasing higher returns on investments. Many of them are seen as soft targets for rogue brokers.

When investors of the firm concerned began to suspect they had been duped, the trading floor was shut. According to the whistleblower, computers were wiped, paperwork destroyed, and the desks cleaned with bleach to remove DNA traces. The whistleblower, a former commodities trader, was asked to sell on the data, which he said could fetch up to £50 a file from those operating boiler room scams.

Barclays said: "Our initial investigations suggest this is isolated to customers linked to our Barclays Financial Planning business, which we ceased operating as a service in 2011. Based on what we have seen, this appears to be data from 2008 or earlier.

"This appears to be criminal action and we will co-operate with the authorities on pursuing the perpetrator.

"We would like to reassure all of our customers that we have taken every practical measure to ensure that personal and financial details remain as safe and secure as possible."

The Information Commissioner's Office, which can fine organisations up to £500,000 for failing to protect private data, said in a statement: "It's crucial that people's personal information is properly looked after. We will be working with the Mail on Sunday this week to get further details of what has happened here, as well as working with the police."
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FCA launches review into RBS's small business lending

Britain's financial regulator has appointed two outside firms to review part-nationalised Royal Bank of Scotland's treatment of struggling small business customers.

RBS, which is 82-percent owned by the government, has been accused by government adviser Lawrence Tomlinson of pushing struggling small firms into its Global Restructuring Group (GRG) "turnaround" unit, so it could charge higher fees and interest, and take control of their assets.

The Financial Conduct Authority (FCA) said on Friday that consultancy Promontory Financial Group and Mazars, an accounting firm, will conduct the independent review which will be paid for by the bank.

The review will consider allegations of poor practice set out in two reports, and publish its findings in the third quarter.

"The review will also consider whether any poor practices identified are widespread and systematic. If this is the case, the second stage of the review will identify the root cause of these issues and make recommendations to address any shortcomings identified," the FCA said in a statement.

Jon Pain, head of conduct and regulatory affairs at RBS, said that in addition to the FCA's review the bank has commissioned lawfirm Clifford Chance to further investigate loans to business customers.

"Any customer with concerns about their experience with GRG can contact Clifford Chance to have their case examined," Pain said.

The FCA said that while commercial lending is not a regulated activity, if the findings reveal issues which come within the FCA's remit it will consider further regulatory measures.

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FCA stands by decision to sanction Paul Flowers as Co-op Bank chairman

Regulator's Clive Adamson refuses to concede to MPs that appointment of now-disgraced Methodist minister was mistake

The regulator who authorised Paul Flowers's appointment as chairman of the Co-operative Bank faced intense criticism from MPs on Tuesday after he insisted he stood by the decision to allow the now disgraced Methodist minister to take on the role after a 90-minute interview in 2010.

Clive Adamson, head of supervision at the Financial Conduct Authority (FCA), met with incredulity among MPs on the Treasury select committee when he initially refused to concede that the appointment of Flowers – branded a "financial illiterate" by the committee's chairman, Andrew Tyrie – had been a mistake.

Under often hostile questioning, Adamson was asked if he and others were right to stay at the regulator, which has taken over from the Financial Services Authority. "You clearly did get it terribly wrong," he was told by Andrea Leadsom.

The Co-op Bank is now 70% owned by its bondholders, led by US hedge funds, and only 30% by the mutually owned Co-op Group of supermarkets, pharmacies and funeral homes, after a rescue operation to inject £1.5bn into the bank. The committee is examining the aborted attempt by the Co-op to take over 631 Lloyds Banking Group branches and questioning the merger of the bank with Britannia Building Society in 2009.

Tyrie said the regulator's decision to approve Flowers – who was exposed buying illegal drugs last year – was "a negligent decision, a very poor decision". He said Adamson's evidence exposed flaws in the so-called approved persons regime, under which officials are authorised to work in the City. "These flaws contributed to the appointment of a man with no knowledge of finance and no experience of running the board of a major corporation as the chairman of Co-op Bank in the immediate aftermath of the financial crisis," Tyrie said after the hearing.

Tyrie called for the entire approved persons regime to be torn up. "[Adamson] told us that, in the FCA's view, the reforms being applied to banks should also apply across the rest of the financial services industry," he said.

Towards the end of the two-hour hearing, Adamson eventually conceded that the appointment of Flowers – who chaired the bank from mid-2010 and left in June 2013, just as the £1.5bn capital shortfall was identified – was wrong, but said it had been the right decision at the time.

He insisted that the Flowers he authorised was a "more cogent individual" than the one who appeared before the committee last year, when the chairman was unable to give the size of the bank's balance sheet.

Adamson stressed that nothing in the rules at the time required him to interview Flowers. "I didn't think it was a mistake given the information I had at the time," Adamson said. Flowers, he said, was appointed to chair an "unruly" board of 22 individuals, and two deputies were appointed – Rodney Baker-Bates and David Davies – to counter his lack of banking knowledge.

"Do I regret what subsequently happened? Yes I do," Adamson said, conceding that Flowers would not be authorised now. Mark Garnier MP declared himself "almost speechless" after Adamson admitted Flowers had been approved after an hour-and-a-half interview and without his references being taken up. Flowers had disclosed a spent conviction for gross indecency from 1981, but it was not deemed relevant.

Sitting in the public area of the committee room was Lord Myners, who was last month appointed as a non-executive of the Co-op Group and will head the review of its governance. As Myners looked on, Adamson said: "I stand by the decision" to appoint Flowers.

Baker-Bates visited Adamson in 2012 to warn that the takeover of the Lloyds branches was a "step too far", but the negotiations were allowed to carry on for another nine months before they collapsed in April 2013.

Baker-Bates "had blown the whistle", said Labour MP Pat McFadden and, along with the other vice-chairman, Davies, had voted against this so-called Verde transaction. Both have now left the board.

Adamson was also facing questions about the Co-op's merger with Britannia Building Society in 2009, which is now blamed for many of the problems at the bank but for which the FSA's authorisation was not officially required. Adamson said there was no political interference, but there had been support for the co-operative movement.

The tenure of Graeme Hardie as a non-executive director on the Co-op board was also questioned after he took the role despite having been involved in approving Flowers' position as chairman when he was an adviser to the regulator. Richard Pym, chairman of Co-op Bank, said Hardie was doing a first-rate job and should not resign.

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UK regulator urges banks to speed up swaps mis-selling compensation

Banks have so far handed out only £15.3m of the £3bn set aside for compensation, the Financial Conduct Authority says

Britain's financial regulator has written to the bosses of the country's biggest four banks to tell them to speed up the process of compensating small firms mis-sold complex hedging products.

Banks have paid out only a tiny fraction of the £3bn they set aside for compensation, data from the Financial Conduct Authority (FCA) showed on Thursday.

The banks have so far handed out £15.3m, with 125 offers accepted by customers. The regulator ordered a review of nearly 30,000 cases in May, having identified serious failings in the way the products were sold.

The FCA said on Thursday that progress in paying out compensation had been slower than expected but that there had been a significant pick-up in October.

"We gave the banks six to 12 months to complete their reviews from the start of the process and are frustrated that they are all expecting to meet the lower end of our expectations," the FCA said on its website.

The regulator said current trends suggested banks would not meet the deadline, so it has written to the bosses of Royal Bank of Scotland, Lloyds Banking Group, Barclays and HSBC to make its expectations clear and agree practical ways to speed up the process.

The interest rate swaps were designed to protect smaller companies against rising interest rates, but when rates fell, they had to pay large bills, typically running to tens of thousands of pounds. Companies also faced penalties to get out of the deals, which many said they had not been told about.

Article Source : http://www.guardian.co.uk
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Rabobank faces £600m fine as Libor scandal resurfaces

Dutch mutual expected to become fifth financial institution to face huge penalty for attempting to rig benchmark interest rate

The Libor rigging scandal could be reignited on Tuesday when Dutch mutual Rabobank is expected to become the fifth financial institution to be hit with a huge fine for attempting to rig the benchmark interest rate.

The bank is thought to be facing fines of more than £600m from regulators on both sides of the Atlantic, who are continuing their investigations into alleged manipulation of the key interest rate.

London's Financial Conduct Authority (FCA) and regulators in the US are thought to be poised to levy larger than expected penalties on Rabobank, a co-operative-style institution whose roots lie in financing agriculture and which escaped the financial crisis without a taxpayer bailout.

The bank has been warning that it faced a fine for Libor rigging since the summer when it revealed it had made a provision of an undisclosed sum in preparation for the regulatory action.

The Libor scandal was first exposed in June 2012, when Barclays was fined £290m for its role in attempting to manipulate the rate; its top management was subsequently forced out. Since then Royal Bank of Scotland, Swiss bank UBS and the money broker Icap have been fined. UBS received the highest penalty of £940m.

Rabobank said last week that details of its punishment were getting closer to publication. "Various authorities have almost completed their investigation into Rabobank's role in the Libor and Euribor setting process," the bank said. "Rabobank expects to be able to enter into settlements with these authorities within the next two weeks. Rabobank is not yet in a position to comment on possible settlement amounts."

When it took a provision for Libor, it said it had been named as defendant in civil litigation in the US and that it would defend itself against any such claims.

At the time of the fine against Barclays City regulators said they were investigating seven other potential cases, which appears to indicate there are still three outstanding.

The regulator declined to comment on Monday night and Rabobank declined to elaborate on its previous statements.

Since the Libor scandal broke regulators have begun to scrutinise the way other benchmarks are set, such as those in the foreign exchange markets.

Earlier this month the FCA began an investigation that is expected to be on the scale of Libor after gathering information on the £3tn-a-day currency markets. The regulators are looking at the way traders may have been able to influence the way currency benchmarks are set and scrutinising the way energy markets operate.

Article Source : http://www.guardian.co.uk
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