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Points of View: Foreign exchange crackdown

Last week saw the FCA impose the largest fines in its history following its investigation into alleged market manipulation in the foreign exchange market.   Five banks agreed to a settlement of £1.1bn with the FCA alongside similar sized fines levied by the US regulator (the CFTC). The two UK banks penalised by the FCA were HSBC (£216m) and Royal Bank of Scotland (£217m), while Barclays hit the headlines for pulling out from a settlement at the last minute.  Its reasoning for this surprise move is that it wants to wait for an agreement that will include other US regulators, but investors have thus far been critical, saying the uncertainty created will undermine the share price.

These latest settlements, and their significant size, serve to reinforce the need for banks to have efficient controls in place to prevent such problems and to apply lessons learnt across their businesses. There are a number of investigations ongoing and regulatory fines have become entrenched in the banking landscape. RBS, for example, had set aside a provision of £400m which covered its total fines of £382m while Barclays have a provision of £500m. The increase in fines that we have seen in the sector in recent years has been significant and, from an investor viewpoint, regulatory risk is one of the main ‘known unknowns’ in the banking sector. As with all investments, one must be aware of the risks before investing so that they may be weighed up against potential returns. 

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