[Photo: Forbes.com]

BNP Paribas agreed to pay a $350 million fine to settle charges by New York’s Department of Financial Services (NYSDFS) arising out of the Bank’s global foreign-exchange business. As part of the settlement, the company must improve senior management oversight as it pertains to foreign exchange trading.

ACCORDING TO NYSDFS FINDINGS, … from 2007 to 2013, major deficiencies in the Bank’s oversight enabled “nearly unfettered misconduct by at least a dozen BNPP traders and salespeople” in New York, and in other key trading hubs, including London and Tokyo - all of whom have either been terminated, resigned or otherwise disciplined.

Improper conduct at BNPP included:  (i) collusive activity by forex traders to manipulate forex currency prices and forex benchmark rates; (ii) executing fake trades to influence the exchange rates of emerging market currencies; and,  (iii) improperly sharing confidential customer information with traders at other large banks. 

For many years, numerous forex traders participated in multi-party chat rooms where they engaged in a variety of misconduct, including:

• Collusive conduct carried out through on-line chat rooms that involved fake trades designed to manipulate prices; collusion in setting spreads for customers trading in certain currencies, in order to widen the spreads and artificially increase profits;

• Improperly exchanging information about past and impending customer trades in order to maximize profits at customers’ expense.  Conduct included improper sharing of confidential customer information via personal e-mail – including through use of a sophisticated codebook that helped identify dozens of clients, central banks or important market participants and specified trading volumes;

• Manipulation of the price at which daily benchmark rates were set – both from collusive market activity and improper submissions to benchmark-fixing bodies; and

• Misleading customers by hiding markups on executed trades, including by using secretive hand signals when customers were on the phone; or by deliberately “underfilling” a customer trades, in order to keep part of a profitable trade for the Bank’s own book.

NYSDFS’ investigation also uncovered efforts by BNPP traders to conceal information.