Barclays Pressed by New York’s Bank Regulator in FX Probe

By Greg Farrell

New York’s top banking regulator is once again putting the pressure on a foreign bank -- this time over its currency-trading practices.
Benjamin Lawsky, the head of New York’s Department of Financial Services, refused to join a group settlement announced yesterday by U.S. and European regulators, causing Barclays Plc (BARC) to pull out at the last minute, according to a person familiar with the matter.
Lawsky decided the settlement over rigging foreign-exchange rates wouldn’t be severe enough and instead is continuing his own probe, said another person briefed on the matter who asked not to be named because the investigation isn’t public. He has also appointed a monitor, Devon Capital LLP, to review Barclays’s continuing conduct, confirmed John Padrnos, a partner at
the advisory firm, which specializes in derivatives.

Broken Benchmarks

Barclays is in a unique position because it’s the only one of six banks in the settlements announced yesterday that relies on a license from the state of New York. Lawsky told Barclays last week that he wouldn’t join the other regulators, said the second person familiar with the matter. They settled for a total of $4.3 billion with Royal Bank of Scotland Group Plc, HSBC Holdings (HSBA) Plc, Citigroup Inc., JPMorgan Chase & Co., UBS AG and Bank of America Corp.

Photographer: Jin Lee/Bloomberg

Benjamin Lawsky, superintendent of the New York State Department of Financial Services.

Barclays’s shares fell 2.17 pence in London, compared with a 0.3 percent drop by HSBC and a 0.95 percent decline by RBS. Barclays stock has declined 15.6 percent this year. Caitlin Ferrell, a spokeswoman for DFS, said the department had no comment on the Barclays matter.

Tough Stance

Lawsky, 44, has increasingly taken a tough stance on Wall Street, setting his own terms independently from other regulators and prosecutors. He’s had the most impact on foreign banks, overseeing many of their U.S. units.

He pushed for a central role in a broad settlement with BNP Paribas (BNP) SA over sanctions violations and struck out alone against Standard Chartered Plc for inadequate money laundering controls. In the BNP case, he insisted the bank dismiss executives, saying it’s essential to punish individuals to deter wrongdoing. He also forced BNP to suspend some of its dollar-clearing transactions.
The banks that settled currency-rigging allegations with regulators remain under criminal investigations. The U.S. Justice Department is working with the Federal Reserve and Britain’s Serious Fraud Office in its probe of the $5.3 trillion-a-day currency market.

Libor Settlement

Barclays was the first bank to settle a probe for interest rate manipulation in 2012. The bank was fined 290 million pounds by U.S. and U.K. authorities after admitting it submitted false London and euro interbank offered rates. That led to the resignation of then-Chief Executive Officer Robert Diamond and Chairman Marcus Agius, and prompted a revamp of the bank’s culture and investment bank.
Investigators initially focused on whether traders colluded to manipulate the WM/Reuters benchmark rates. The focus of the probes has expanded to include whether traders used confidential information to take bets on unauthorized personal accounts, and whether sales desks charged clients excessive commissions. More than 30 traders have been fired, suspended, put on leave, or resigned since the probes began last year.
Two years ago, after losing patience with the pace of negotiations between the Justice Department, the Federal Reserve, the U.S. Treasury and the Manhattan District Attorney’s office over alleged sanctions violations by Standard Chartered (STAN), Lawsky decided to publish a public letter to the bank demanding to know why he shouldn’t revoke their license to operate in New York.
The missive sent the bank’s shares down 16 percent and infuriated his fellow enforcers, who fumed over the action, which had upstaged and embarrassed them, according to people briefed on the matter at the time.
Standard Chartered, which is based in London, settled with Lawsky that month for $340 million and agreed to hire a monitor. The other regulators wound up with a smaller settlement -- $327 million -- four months later.