LONDON—U.S., British and Swiss regulators are set to penalize big banks for alleged improprieties in the foreign-exchange markets on Wednesday, and individual employees are next in line for scrutiny.
Regulators plan to announce a series of settlements, starting at 6 a.m. in London, with total penalties against seven banks likely reaching about $4 billion, according to people familiar with the discussions. The settlements still await approval from some banks’ boards as of Tuesday evening, the people added.
Among the biggest losers: UBS AG , which received the largest penalty from the U.K., at £234 million (about $372 million), as well as a separate Swiss enforcement action
(Update: The settlements were confirmed Wednesday, with five banks agreeing to pay about $3.3 billion to U.S., British and Swiss regulators.)
The settlements are likely to fault banks for inadequately supervising their traders and other employees and lacking sufficient controls to prevent them from engaging in allegedly improper behavior, including trading for their own personal accounts, in the foreign-exchange markets, these people say. Regulators are expected to say that the activity had the potential to skew one of the world’s biggest, most interconnected markets and to hurt the banks’ customers.
Wednesday’s settlements won’t target any individuals, these people say. The U.K.’s settlement documents, for example, aren’t likely to name or otherwise identify individuals, one person said.
But actions against individuals are in the pipeline, as regulators and prosecutors try to defuse criticism that they haven’t done enough to hold bank executives and employees personally responsible in the wake of the financial crisis.
Switzerland’s financial-markets regulator warned several past and present UBS employees Tuesday that they face potential enforcement actions for their roles in alleged misconduct in the foreign-exchange markets, according to people familiar with the matter.
The warning letters from the regulator, known as Finma, were sent to about 10 past and present UBS employees, these people said. The letters say the recipients are suspected of misconduct and are given the chance to respond to the warnings and defend themselves. It isn’t clear which individuals received the Finma warning letters or what potential penalties the individuals might face. UBS has said it is cooperating with authorities and that it has taken disciplinary action against employees in connection with the probe.
Meanwhile, prosecutors in the U.K. and U.S. are also continuing their investigations. Both the Justice Department and U.K. Serious Fraud Office are hoping to bring actions against individuals in 2015, people familiar with the matter have said.
A dozen banks already have fired or suspended about 30 traders and other employees in connection with the foreign-exchange case. Lawyers who have been working on the case say Wednesday’s settlements probably will clear the way for more dismissals.
On the chopping block: compliance staff and lower-level managers who the banks blame for not preventing the misconduct but who, until now, have been involved in helping wrap up the government and internal investigations, said Neil Micklethwaite, a partner at London law firm Brown Rudnick LLP. His firm has been representing bank staff in the probe. “That’s where there’s still unfinished business,” Mr. Micklethwaite said.
Criminal-defense lawyers representing individuals in the investigation say they recently have been trying to persuade regulators and prosecutors on both sides of the Atlantic not to target or even name their clients in public. They say they have succeeded in terms of Wednesday’s settlements but that this is likely to change next year, with criminal charges expected to target individuals.
But, based on the current contours of the criminal investigations, future charges aren’t likely to target high-ranking bank executives, according to lawyers and other people familiar with the investigation. The highest they may reach is the senior traders who were overseeing currencies-trading desks at some banks, these people say.
That fits into a broader pattern of recent financial-crime cases. In the U.S. and British investigations into manipulation of benchmark interest rates, more than a dozen traders and brokers have faced criminal charges in the past two years but no senior executives, even though multiple banks have pleaded guilty to criminal offenses.
Wednesday’s expected settlements are the culmination of a roughly 18-month investigation by authorities in a dozen countries. The probes initially focused on potential manipulation of an obscure currencies benchmark but subsequently widened into many nooks and crannies of the vast foreign-exchange market.
Wednesday’s action is expected to start with the U.K.’s Financial Conduct Authority announcing settlements with a half-dozen banks: UBS, Barclays PLC, HSBC HoldingsPLC, Royal Bank of Scotland Group PLC, Citigroup Inc. and J.P. Morgan Chase & Co. At the same time, Switzerland’s Finma plans to announce a settlement specifically with UBS. All the banks have said they are cooperating with investigators. Aside from UBS, the banks face FCA-levied penalties of between about £200 million and about £275 million, according to one of the people familiar with the matter.
In the U.S. Wednesday, the Office of the Comptroller of the Currency and the Commodity Futures Trading Commission are expected to announce their own settlements. The CFTC settlements, with most if not all of the six banks involved in the FCA case, will likely involve fines of about $300 million for each bank, according to a person familiar with the matter, and will also potentially include Bank of America Corp. That bank, too, has said it is cooperating with investigators.
Other U.S. agencies that have probed forex trading include the Federal Reserve and the Securities and Exchange Commission.
The large UBS penalty reflects what British authorities regard as its central role in the foreign-exchange case, according to people familiar with the matter. The Zurich-based bank has suspended at least seven traders from its offices, including in Zurich and in New York, The Wall Street Journal has previously reported. In at least one case, a rival bank has suspended a senior trader because of his alleged conduct when he previously worked at UBS.
It is the latest black eye for UBS. The bank endured a rogue-trading scandal in 2011 and, in 2012, a $1.5 billion penalty and a guilty plea to interest-rate-rigging charges. This year it paid a $1.4 billion bond in a French tax-evasion case. UBS has said it is cooperating with that investigation but called the bond amount “unprecedented and unwarranted.” Last month, the bank booked about $1.9 billion in legal provisions for the third quarter.
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