U.K. Bank FX-Rigging Fine Dwarfed by PPI Mis-Selling Bill

As the cost for rigging currency markets keeps rising, British banks can take cold comfort the costs are dwarfed by wrongfully sold insurance.

Royal Bank of Scotland Group Plc and HSBC Holdings Plc today agreed to pay a combined $1.3 billion to regulators to settle a probe into the manipulation of foreign-exchange benchmarks. Even with Barclays Plc, which has delayed its settlement, setting aside 500 million pounds ($792 million) in the third quarter to cover a fine, that’s still just a fraction of the 22 billion pounds in costs for wrongly sold payment-protection insurance to retail customers in the U.K.

British banks have set aside billions of pounds amid a series of scandals as regulators stepped up their scrutiny in the wake of $1.9 billion in penalties to settle allegations they rigged the London interbank offered rate. Fines have ranged from HSBC paying $1.9 billion in 2012 to settle U.S. probes into money laundering to Standard Chartered Plc’s $340 million penalty the same year for breaching sanctions on Iran.

“The impact on banks is relatively contained,” said Ian Gordon, an analyst at Investec Plc in London, who has a sell rating on RBS and an add on HSBC. “Apparently it’s still far better to manipulate currencies than to mis-sell PPI.”

Barclays shares slid 2 percent to 229.95 pence at 3:50 p.m. in London. RBS dropped 0.9 percent, while HSBC fell 0.4 percent.

FCA Fine

Lloyds Banking Group Plc said last month it set aside an additional 900 million pounds for mis-sold insurance in the third quarter, bringing its total bill to 11.3 billion pounds. That’s the highest of any British lender. Barclays took a 170 million-pound provision for PPI in that period, while RBS set aside an additional 100 million pounds.

Today’s settlement includes the Financial Conduct Authority’s largest-ever fines and marks the first time it has entered an agreement with a group of banks. Previously, the regulator’s largest penalty was a 160 million-pound fine against UBS AG over Libor manipulation. RBS was fined about $634 million for currency rigging, while HSBC will pay about $618 million.

Benjamin Lawsky, superintendent of the New York State Department of Financial Services, refused to sign on to the FCA settlement because he viewed it as too weak, according to a person briefed on the matter who asked not to be named because the discussions were confidential.

Bank Limits

Fines threaten to erode earnings as regulators demand higher capital buffers to shield the system from future financial crises. The Financial Stability Board, led by Bank of England Governor Mark Carney, said earlier this week the largest banks may be required to hold total loss-absorbing capacity equivalent to a quarter of assets weighted for risk.

“Fines for market manipulation should have been higher as the cost of currency rigging to society is greater than PPI, because it damages entire economic systems,” said Tom Kirchmaier, a fellow in the financial-markets group at the London School of Economics, who specializes in the governance of banks. “We’ve come to the limit of what can be levied on banks without destroying their capital base.”

While the FCA completed its probe into HSBC, RBS, Citigroup Inc., JPMorgan Chase & Co. and UBS for currency rigging, it has yet to reach a settlement with Barclays.

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