The Ontario Securities Commission is carrying out settlements with the Royal Bank of Canada and the Toronto-Dominion Bank in the first major Canadian regulatory action in the global foreign exchange trader investigation.
From 2011 to 2013, employees of both banks used electronic chat rooms "many hundreds" of times to share confidential customer information with foreign exchange traders from outside companies, stated the OSC in a statement of charges published at the end of Monday.
Traders from both banks had a "profit motive," the OSC said. "Traders were looking for an advantage to make more profitable transactions on behalf of their bank, which in turn would benefit the trader through incentives on performance", wrote the OSC in the note. of charges.
On Friday the OSC has scheduled hearings for both banks. The details of the agreement are not yet available.
In 2013, the little-known world of foreign exchange trading made headlines on news that traders in some of the world's biggest banks could have colluded, using chat rooms with names like The Cartel, The Bandits & # 39; Club and The Mafia. It was assumed that the activity lasted a decade. In November of that year, the authorities of six countries had announced surveys, but little was known about the actions of Canada.
RBC and TD told The Globe and Mail they were not contacted by the regulators at the time. OSC did not claim that Canadian banks were part of those specific chat rooms.
The banks are accused of not complying with the regulatory obligation to have sufficient supervision and controls in their exchange trading activities.
"The conduct covered by the charges occurred many years ago and since then we have taken a series of steps to improve our controls," said Andrew Block, a spokeswoman for RBC, in an e-mail to The Globe.
"Serving clients with excellence and integrity is at the heart of our culture and we take these issues very seriously," said TD Lynsey Wynberg spokesman on Monday in an e-mail statement.
The OSC claims that both banks "did not sufficiently promote a culture of compliance" in the foreign currency trading sector, which allowed foreign currency traders to behave in a way that put RBC's economic interests TD in front of the interests of its customers, other market participants and integrity of capital markets.
The charges against TD and RBC identified "many hundreds" of disclosures prohibited during 2011-2013 and found "in many prohibited disclosures, confidential customer information was shared by RBC and TD traders in foreign currency with other participants in the chat ".
The allegations of the OSC contain an excerpt from a chat room that included RBC, TD and an unnamed bank trader. In it, the TD trader reveals that a TD customer has entered "stop order", a sell order at a particular price, and the RBC trader, after learning the information, says he will leave his order on the spot.
On another chat, an unnamed bank trader said: "Friend, the only reason you are awake this year is the cause of my information" and an RBC trader replied : "I agree that your advice was very much appreciated this year".
The OSC stated that RBC and TD operators understood that the sharing of specific customer names was prohibited; and while traders were encouraged to look for and use "market flow" and "market color" in the course of their trading, there was no clear indication as to what – apart from customer names – was allowed.
As a result, confidential information, including specific transaction details, was disclosed by RBC and TD traders to people from other institutions.
"Disclosure of this information in some cases was a breach of confidentiality and created the potential risk that such information could be used for the benefit of the merchant and to the detriment of the customer," said the OSC.
In mid-2012, financial regulators dealt publicly with the charges that banks had conspired to set LIBOR, the London interbank rate offered, a key parameter for loans. This, claims the OSC, "has highlighted concerns about the risk of collusive behavior and the improper use of confidential information. In this period, some banks have begun to ban multi-dealer chat rooms ".
However, he stated the OSC, while the topic of chat rooms was specifically discussed at a meeting of the RBC foreign exchange operating committee in September 2012, the RBC foreign exchange front office decided at that time to prohibit or limit them. It was not until the autumn of 2013 that the RBC took action, affirmed the OSC. TD imposed a ban on the use of chat rooms by merchants in November 2013.
The exchange charges have prompted class action lawsuits involving foreign exchange transactions by various investment companies. Investors said that company employees colluded with each other in chat rooms to fix prices in the foreign exchange market and conspired to set WM / Reuters' benchmark on foreign currency prices.
"Foreign exchange market participants should be able to expect their counterparts not to collude," said Daniel Bach, a partner at Siskinds LLP who represents the plaintiffs in that company.
The OSC, however, stated that "there is no evidence or indication" that RBC or TD "were involved in any plan or collusion to attempt to manipulate the WM / Reuters benchmark or any other reference rate".
Mr. Block of RBC stated that the allegation of allegations does not state any commercial misconduct that caused damage to specific customers. "We will regulate, up to and including termination, anyone on our platform who does not comply with our high standards of behavior and the laws and regulations applicable in any jurisdiction," added Block.
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