U.K. SFO's `Appetite' Questioned After Decision to Drop FX Probe

  • Decision comes after $10 billion in fines for global banks
  • Move closes two-year investigation with no convictions

The U.K. Serious Fraud Office dropped a nearly two-year-old investigation into currency rigging citing insufficient evidence, leading lawyers to question whether courtroom setbacks in its Libor-manipulation probe have curtailed the agency’s appetite for high-profile financial cases.

Despite concluding there were grounds to suspect fraud, the SFO said the prospect of convictions wasn’t “realistic.” The decision comes two months after the embattled prosecutor lost a case against brokers accused of helping ex-UBS Group AG trader Tom Hayes rig Libor, the interest-rate benchmark that caused a similar global storm among authorities to the currency case.

"It is to be hoped that this development is not an indication that the recent apparent softening of regulatory attitudes to the banks extends as far as the SFO," said Richard Burger, a London-based lawyer at the RPC firm. "One must ask how far the SFO’s appetite or even confidence for prosecution has been diminished by the recent acquittal of Libor traders."

Though banks including Citigroup Inc., Barclays Plc and JPMorgan Chase & Co. have paid $10 billion in fines and pleaded guilty to felony charges of conspiring to manipulate the price of U.S. dollars and euros, global prosecutors are yet to charge any individuals with wrongdoing. One former trader, arrested in the U.K. probe, quietly had his bail conditions dropped months ago.


"Coming hot on the heels of the recent Libor verdict, this will be embarrassing to the SFO," said Alison McHaffie, a regulatory partner with law firm CMS in London. "However it does show the difficult job the SFO has in demonstrating criminal activity by individuals for this type of market misconduct."

The foreign-exchange investigation began after Bloomberg reported beginning in June 2013 that traders were colluding to manipulate benchmark currency rates and profit at clients’ expense. Their efforts were focused on the WM/Reuters 4 p.m. fix, used to value trillions of dollars of investments worldwide and to determine the price some companies and fund managers pay to swap currencies.

Bank traders colluded to influence benchmark rates by aligning positions and pushing transactions through at the same time, according to the U.S. Justice Department. Traders who described themselves as members of “The Cartel” used online chat rooms to discuss their positions before the rates were set and suppress competition in the market.

Brazen Display

The SFO said it would assist U.S. prosecutors, who are still investigating what Attorney General Loretta Lynch has called a "brazen display of collusion” among some of the world’s biggest banks.

Justice Department spokesman Peter Carr said the DOJ has an active investigation into the matter and declined further comment.

The SFO announcement came minutes before the Financial Conduct Authority, which also prosecutes some types of fiscal crime, notched a big victory in an insider-dealing case. Damian Clarke, a former equities trader at Schroders Plc in London, pleaded guilty a week before his trial was scheduled to start.

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