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SEC official blasts waivers for bad-actor banks

SEC Commissioner Kara Stein speaking at an International Monetary Fund conference in Washington, D.C.(Photo: Mandel Ngan, AFP/Getty Images)

A Securities and Exchange Commission official is blasting waivers the financial regulator approved for five banks whose traders manipulated the world’s foreign-exchange market.

In an angrily worded dissent, SEC Commissioner Kara Stein refused to support waivers enabling Citigroup, JPMorgan Chase, London-based Barclays, Swiss banking giant UBS and Royal Bank of Scotland to continue normal activities despite the rate-rigging findings.

“Allowing these institutions to continue business as usual, after multiple and serious regulatory and criminal violations, poses risks to investors and the American public that are being ignored,” Stein wrote in a statement dated Thursday, one day after the SEC approved the waivers.

The five banks Wednesday agreed to pay penalties collectively totaling more than $ 5.5 billion for what Attorney General Loretta Lynch termed a “brazen” scheme to manipulate U.S. dollar-Euro spot trading on the $ 5.3-trillion-a-day foreign exchange currency market.

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Bank traders colluded in an exclusive online chat room they dubbed “The Cartel” or “The Mafia” as they carried out the criminal rate-rigging scheme designed to boost their own profits, according to documents released in the Wednesday settlements.

The scheme operated from December 2007 to January 2013, with bank traders and salespeople lying to customers to collect undisclosed markups for certain transactions, the documents show.

Stein argued that the banks didn’t deserve leniency from the SEC, because the five are repeat offenders that have been hit with millions of dollars in penalties for previous offenses. Nonetheless, the five have been granted at least 23 waivers during the past nine years that enabled them to continue normal operations despite wrongdoing, said Stein.

She noted that the Department of Justice penalized UBS, Barclays and Royal Bank of Scotland in 2014 for manipulating the London Interbank Offered Rate (Libor), a financial benchmark used to set rates on trillions of dollars in mortgages, credit cards and loans.

After the Libor guilty pleas, the SEC granted UBS a waiver that required compliance with all terms in the judgment against the Swiss bank. The bank’s guilty plea to a criminal antitrust charge in the foreign exchange investigation breached the Libor waiver conditions, yet the SEC approved yet another waiver this week.

“It is troubling enough to consistently grant waivers for criminal misconduct,” wrote Stein. “It is an order of magnitude more troubling to refuse to enforce our own explicit requirements for such waivers.

“Further, I am concerned that the latest series of actions has effectively rendered criminal convictions of financial institutions largely symbolic,” concluded Stein. “Firms and institutions increasingly rely on the Commission’s repeated issuance of waivers to remove the consequences of a criminal conviction, consequences that may actually positively contribute to a firm’s compliance and conduct going forward.”