Huge bank fines could have been avoided with monitoring software

The FCA's fine on five banks for their part in foreign exchange rigging could lead to the introduction of message monitoring software

The Financial Conduct Authority’s (FCA) massive fine on five banks for their part in foreign exchange rigging could lead to the introduction of software to automatically monitor messages sent and received by traders.

The UK regulator and its US counterpart fined HSBC, Royal Bank of Scotland, Swiss bank UBS and US banks JP Morgan Chase and Citibank a combined total of £1.1bn for traders' attempted manipulation of foreign exchange rates.

Meanwhile, a separate probe into Barclays is continuing.

Executives have been sacked as a result, but better message monitoring could have picked up on the activity earlier, said one Computer Weekly banking source.

Traders in foreign currencies can collude to fix prices. For example, one could make a bid to buy a particular currency at a high price, but cancel it before the trade is made. This done on a massive scale, which requires collusion between traders at different banks, will confuse systems that set prices.

The FCA wants banks to prevent this from happening again in the future, and monitoring software could help them do so. 

“In addition to taking enforcement action against and investigating the six firms where we found the worst misconduct, we are launching an industry-wide remediation programme to ensure firms address the root causes of these failings and drive up standards across the market,” said the FCA. 

“We will require senior management at firms to take responsibility for delivering the necessary changes and attest that this work has been completed.”

Banks focus on the economics, so bigger fines would help CIOs make the case for greater investment in IT, which could include message monitoring.

“The whole thing happened through IT and all the trades are done through computers,” said the source. “Banks need software that can automatically monitor messages between staff such as traders and spot suspicious activity.”

An EU investigation into the alleged collusion between banks has requested to see the Facebook messages of foreign exchange traders. EU anti-trust regulators have seen emails and instant messages of traders, but expanded this to Facebook.

“The law-makers extract all these messages, which the banks must keep, then use them in court,” said the source. “The technology is there and somebody could write an algorithm to read all messages.”

He said this already happens with emails to prevent things like the use of abusive language.

Gareth Lodge, financial services analyst at Celent, said although it is probably technologically feasible to spot patters through software monitoring, the sheer volume of activity would make it difficult.

He said banks already monitor voice calls, but this has not stopped the collusion.

“Monitoring electronic messages could potentially enable banks to spot things earlier,” added Lodge.

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