HSBC to pay NZ$244 million to settle Fed probe of FX practices

HSBC has already paid penalties of more than NZ$838m for rigging currency benchmarks. Photo / 123RF

HSBC has been fined US$175 million (NZ$244m) by the Federal Reserve after a long-running probe found that foreign-exchange traders had been front-running client orders, sharing confidential customer details with dealers at other firms and attempting to rig currency benchmarks.

The Fed order released Friday detailed multiple instances of improper behavior, including allegations that traders may have conspired with counterparts at other firms to coordinate strategies to influence market prices. The London-based bank will be required to fix inadequacies in its "governance, risk management, compliance, and audit policies," the regulator said.

"We are pleased to have resolved this matter," HSBC said in an emailed statement. The Fed said the bank cooperated with the investigation.

This isn't the first time HSBC, one of the biggest currency traders, has been fined for manipulating the world's largest market.

The bank paid penalties of more than US$600m (NZ$838m) to the US Commodity Futures Trading Commission and Britain's Financial Conduct Authority in 2014 for rigging currency benchmarks.

HSBC is still under investigation by the US Department of Justice for the conduct, the bank said in August, and has set aside more than $1 billion (NZ$1.4b) for possible settlements.

The bank has 90 days to submit a written plan to the regulator to improve its compliance with US laws and regulations, the Fed said in the statement.

The Fed order comes as the bank's former global head of foreign-exchange cash trading, Mark Johnson, faces trial for fraud in the US, accused of using insider knowledge to front-run a US$3.5b (NZ$4.8b) currency deal in 2011 that allegedly made the bank US$8m (NZ$11.1m) in profits.

The penalty is a reminder of the legacy misconduct problems the lender still faces as new Chairman Mark Tucker takes over from Douglas Flint on October 1.

HSBC has been under the supervision of an external monitor as part of a deferred prosecution deal it struck with the US Department of Justice in 2012, when it was fined US$1.9b (NZ$2.6b) for aiding Mexican drug cartels to launder money and breaching international sanctions. The DOJ may choose to extend the tenure of the monitoring when the agreed five-year period ends later this year.