Banks Said to Be Asked In by FCA to Discuss FX Penalties

Negotiations between the U.K. regulator and banks over penalties for alleged currency rigging will start as soon as September, with some firms still in the dark over what they’ll be accused of, people with knowledge of the situation said.

The Financial Conduct Authority scheduled meetings for next month to discuss fines with some of the banks it’s in settlement talks with, according to two people, who asked not to be identified because the discussions are private. The regulator hopes to settle with some by November, four people said.

The FCA is in talks with Barclays Plc, Citigroup Inc., HSBC Holdings Plc, JPMorgan Chase & Co., Royal Bank of Scotland Group Plc and UBS AG to resolve its foreign-exchange manipulation investigations, people with knowledge of the discussions said in July.

Authorities on three continents are investigating whether dealers at the world’s biggest financial institutions traded ahead of their clients and colluded to rig the WM/Reuters rate, a benchmark that pension funds and money managers use to determine what they pay for foreign currencies. The FCA is trying to fast-track the process to avoid it going on for as long as its probe into the London interbank offered rate, or Libor. The regulator is seeking to keep the scope of the deal narrow to achieve this, the people said in July.

Spokesmen for the banks and regulator declined to comment on the talks.

‘Warms Up’

At least three banks haven’t received any information from the agency about what exactly they’re alleged to have done wrong, the people said. That’s unusual, according to Richard Burger, a lawyer at London-based RPC LLP who previously worked at the regulator.

“It’s normal for the FCA to enter into a pre-settlement, informal dialog with firms before the process of penalties and notices starts because it warms up firms to the idea of settlement and means an agreement is usually reached much more quickly at the end,” Burger said. “In a global investigation like this though, the regulator may be trying to avoid any mis-communication of messages between banks by not giving any information on its case before the formal talks begin.”

There’s not been any indication yet of the size of the fines that might be involved, according to two of the people. Sanford C. Bernstein Ltd. analyst Chirantan Barua said in a note today that Barclays could incur fines up to 700 million pounds ($1.2 billion) to resolve the currency-rigging probes.

At least 10 banks have conducted internal investigations and handed material over to the regulator, FCA Chief Executive Officer Martin Wheatley told U.K. lawmakers in February. If firms don’t settle, the FCA could be forced to go back and undertake a more thorough probe, according to one of the people.

At least 25 traders have been fired, suspended or put on leave since investigations into instant-message groups such as “The Cartel” and “The Bandits’ Club” started last year.

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