HSBC has been accused of upholding a ‘rotten culture’ within its forex trading desk from 2004 to 2006. The currency manager ECU Group has claimed in a court trial that HSBC bankers, during the period, would misuse confidential derails to ‘front run’ orders for its clients, describing the fraud and misconduct allegations as a ‘disgraceful episode’. The allegations have been issued at the beginning of a seven-week trial in which HSBC has been accused of fraud in relation to around 52 foreign exchange trades.
The case is threatening to reopen historical wounds within the $6.6 trillion-a-day forex market, which was shaken by allegations made back in 2013 which claimed that various global banks had been manipulating currency values on a systematic basis for years. During this period of time, HSBC paid around $343m in restitution and fines to the FCA, alongside $276.5m to the US Federal Reserve due to shortcomings in its supervision of FX trading between 2008 and 2013.
Richard Lissack, QC and barrister for ECU Group, said of the allegations that:
ECU’s case is that HSBC’s foreign exchange trading desk between 2004 and 2006 were rotten. Traders treated clients’ orders as an opportunity for self-enrichment.
ECU is a former client of HSBC and also alleges that HSBC’s private bank, HBPB, would commonly carry out “pip theft”, where it would add secret mark-ups or “pips” to the execution prices which were reported back to ECU to obtain an illicit profit from the client. The client had initially complained to the bank regarding out of place FX price changes way back in February 2006, but following an internal probe in HSBC, was assured that no evidence of any wrongdoing was found.
ECU then started to review the unusual trades once again just after 2016, during a time when the US Department of Justice had delivered a formal indictment against two previous HSBC FX traders concerning an alleged front-running accusation at the downfall of Cairn Energy – a different major HSBC client.
HSBC has denied the allegations on a number of grounds, claiming that:
ECU is now engaged in a cynical and opportunistic attempt to resurrect these stale claims, which it could and should have pursued, if at all, in 2006.
HSBC recently revealed its plans to focus on China, Southeast Asia and India and invest more in the region to drive future growth. In the end of May, the bank took a step in refocusing its business by shrinking its US operations. HSBC announced exiting 90 branches of its current network which includes 148 branches in order to wind down its US retail banking business.
