Fed Terminates 2017 Cease-and-desist Order Against HSBC

HSBC no longer has to provide progress reports on its efforts to improve internal controls or manage risks in connection with its FX trading activities.

The US Federal Reserve Board has terminated a six-year-old cease and desist order levelled against HSBC and its holding company for its handling of an FX trading scandal.

In 2017, HSBC Holdings and HSBC North America were fined USD 175 million and ordered to pay a USD 63 million criminal penalty, after regulators officials discovered that HSBC employees used inside information about a pair of multibillion-dollar FX trades in 2010 and 2011 to manipulate foreign exchange markets.

The penalty was part of a global settlement with UK and US authorities. The bank also had to pay more than USD 40 million in restitution to its victims.

HSBC employees were said to have used their knowledge about the FX transactions to make trades in their proprietary accounts, benefitting the bank and the employees’ bonus pay. They also made misrepresentations to one of their clients, Cairn Energy, to conceal their actions.

According to the 2017 consent order, HSBC failed to maintain adequate internal controls and compliance policies to prevent its FX traders from engaging in misconduct, such as disclosing confidential information, manipulating benchmark fixes, and misusing inside information. The order also cited ineffective governance, risk management, and audit programmes to oversee HSBC’s FX activities and detect employee misconduct.

The order required HSBC to submit and implement written programmes to enhance its internal controls, compliance, risk management, and audit; to cooperate with the Fed in its investigations of individuals involved in the misconduct; and to terminate any individual who participated in the misconduct.

On Thursday (24 August), the Fed said it has terminated the cease and desist order, relieving HSBC of the requirement to provide progress reports on its efforts to improve internal controls or manage risks.

“We are very pleased with the Federal Reserve’s decision to terminate the 2017 consent order,” an HSBC spokesperson said. “We will continue to build upon the changes that we have already made to our systems, controls and monitoring systems.”