Five big banks — HSBC, Citibank, JPMorgan Chase, Royal Bank of Scotland and UBS — will pay a total of $3.2 billion to settle charges that they manipulated foreign exchange markets.

In the United States, the Commodity Futures Trading Commission (CFTC) fined the banks a total of $1.4 billion while in Britain, the Financial Conduct Authority (FCA) fined the banks $1.75 billion. In Switzerland, Finma ordered UBS to pay $139 million.

Regulators in the United States, Britain and Switzerland found that ineffective controls at the Banks allowed G10 spot foreign exchange traders to put their banks’ interests ahead of those of their clients and other market participants.

The banks failed to manage obvious risks around confidentiality, conflicts of interest and trading conduct.

These failings allowed traders at those Banks to behave unacceptably.

They shared information about clients’ activities which they had been trusted to keep confidential and attempted to manipulate G10 spot FX currency rates, including in collusion with traders at other firms, in a way that could disadvantage those clients and the market.

Criminal investigations, including those at the Department of Justice in Washington, D.C., have yet to be resolved.

“Firms could have been in no doubt, especially after Libor, that failing to take steps to tackle the consequences of a free for all culture on their trading floors was unacceptable,” said FCA enforcement chief Tracey McDermott. “This is not about having armies of compliance staff ticking boxes. It is about firms understanding, and managing, the risks their conduct might pose to markets. Where problems are identified we expect firms to deal with those quickly, decisively and effectively and to make sure they apply the lessons across their business.  If they fail to do so they will continue to face significant regulatory and reputational costs.”

The foreign exchange market is one of the largest and most liquid markets in the world with a daily average turnover of $5.3 trillion, 40% of which takes place in London.

The spot foreign exchange market is a wholesale financial market and spot foreign exchange benchmarks — also known as “fixes” —  are used to establish the relative value of two currencies.  Fixes are used by a wide range of financial and non-financial companies, for example to help value assets or manage currency risk.”

The investigations found that traders at different banks formed tight knit groups in which information was shared about client activity, including using code names to identify clients without naming them.

These groups were described as, for example, “the players”, “the 3 musketeers”, “1 team, 1 dream”, “a co-operative” and “the A-team”.

Traders shared the information obtained through these groups to help them work out their trading strategies.

They then attempted to manipulate fix rates and trigger client “stop loss” orders — which are designed to limit the losses a client could face if exposed to adverse currency rate movements.

This involved traders attempting to manipulate the relevant currency rate in the market, for example, to ensure that the rate at which the bank had agreed to sell a particular currency to its clients was higher than the average rate it had bought that currency for in the market.

If successful, the bank would profit.

Firms can legitimately manage risk associated with client orders by trading in the market and may make a profit or loss as a result.

The FCA said it is completely unacceptable, however, for firms to engage in attempts at manipulation for their own benefit and to the potential detriment of certain clients and other market participants.

“The setting of a benchmark rate is not simply another opportunity for banks to earn a profit,” said Aitan Goelman, the CFTC’s Director of Enforcement. “Countless individuals and companies around the world rely on these rates to settle financial contracts, and this reliance is premised on faith in the fundamental integrity of these benchmarks. The market only works if people have confidence that the process of setting these benchmarks is fair, not corrupted by manipulation by some of the biggest banks in the world.”