Save content
Have you found this content useful? Use the button above to save it to your profile.
AIA

Forex Manipulation: How do businesses recover losses?

by
8th Dec 2014
Save content
Have you found this content useful? Use the button above to save it to your profile.

The FCA and the US Commodity Futures Trading Commission (CFTC) issued fines of more than £2bn to Citibank, HSBC, JPMorgan Chase, RBS and UBS on 12 November for manipulating FX benchmark rates, while investigations continue in relation to Barclays’ FX transactions, writes Stevie Loughrey of law firm Carter-Ruck.

The two regulators found that traders shared confidential customer order information and altered trading positions in order to suit the banks’ interests. Or, to put it bluntly, deliberately attempted to manipulate benchmark rates so that banks could profit at the expense of their customers. 

The hefty FX fines, which dwarf those imposed for LIBOR manipulation, are presumably intended to have a deterrent effect. The industry-wide “remediation programme” is designed to improve systems and controls.

While it is to be hoped that banks will now clean up their acts, experience suggests this may be somewhat optimistic (the manipulation of FX benchmarks, after all, took place after the fines for LIBOR manipulation). An immediate concern for those businesses which entered into FX transactions between 2008 and 2013 is how they now seek recovery of their losses.

The regulators have been silent in relation to this. They have not ordered the banks to carry out past business reviews and reimburse all those businesses that suffered losses.

This leaves litigation as the only avenue open to businesses seeking redress.

Businesses that engaged in regular and substantial FX transactions where the relevant benchmark rate has been found to have been affected by manipulation are likely to have claims if it can be shown that manipulation caused financial detriment. Claims are likely to include the following causes of action:

a)      Breach of contract, by reference to express or implied terms

b)      Misrepresentation (both negligent and fraudulent)

c)      Tortious claims for loss caused by unlawful means

d)      Unjust enrichment

The findings of the FCA and CFTC provide useful material to support such claims.

If businesses entered into FX transactions with one of the implicated banks on the dates on which manipulation took place, they should consider commissioning an analysis of trading history to calculate the scale of possible losses. This will require a forensic inspection of the business’ records by their accountants.

The business should also seek legal advice at the earliest opportunity because, under English law, there is ordinarily a six-year year window within which to bring a claim.

So any businesses that entered into FX transactions at the end of 2008 and start of 2009 should act quickly.

Lawyers and accountants will need to work closely together when pursuing such claims as quantification of loss and linking it to the underlying manipulation will be critical. 

Tags:

Replies (0)

Please login or register to join the discussion.

There are currently no replies, be the first to post a reply.