NatWest Markets Plc

The Financial Conduct Authority (the FCA) imposed a financial penalty of £217,000,000 on The Royal Bank of Scotland plc (RBS) of 26 St. Andrew Square, Edinburgh, EH2 2YB. The FCA's action took effect on 11 November 2014 and a copy of the Final Notice, which sets out the reasons for the action is displayed on the FCA's website and can be accessed via the following link: http://www.fca.org.uk/static/documents/final-notices/final-notice-rbs.pdf The foreign exchange market (FX market) is one of the largest and most liquid markets in the world. Its integrity is of central importance to the UK and global financial systems. Over a period of five years, RBS failed properly to control its London voice trading operations in the G10 spot FX market, with the result that traders in this part of its business were able to behave in a manner that put RBS's interests ahead of the interests of its clients, other market participants and the wider UK financial system. The FCA expects firms to identify, assess and manage appropriately the risks that their business poses to the markets in which they operate and to preserve market integrity, irrespective of whether or not those markets are regulated. The FCA also expects firms to promote a culture which requires their staff to have regard to the impact of their behaviour on clients, other participants in those markets and the financial markets as a whole. RBS's failure adequately to control its London voice trading operations in the G10 spot FX market is extremely serious. The importance of this market and its widespread use by market participants throughout the financial system means that misconduct relating to it has potentially damaging and far-reaching consequences for the G10 spot FX market and financial markets generally. The failings described in the Final Notice undermine confidence in the UK financial system and put its integrity at risk. RBS breached Principle 3 of the FCA's Principles for Businesses in the period from 1 January 2008 to 15 October 2013 (the Relevant Period) by failing to take reasonable care to organise and control its affairs responsibly and effectively with adequate risk management systems in relation to G10 spot FX voice trading in London. References in the Final Notice to RBS's G10 spot FX trading business refer to its relevant voice trading desk based in London. During the Relevant Period, RBS did not exercise adequate and effective control over its G10 spot FX trading business. RBS relied primarily upon its front office FX business to identify, assess and manage risks arising in that business. The front office failed adequately to discharge these responsibilities with regard to obvious risks associated with confidentiality, conflicts of interest and trading conduct. The right values and culture were not sufficiently embedded in RBS's G10 spot FX trading business, which resulted in it acting in RBS's own interests as described in the Final Notice without proper regard for the interests of its clients, other market participants or the wider UK financial system. The lack of proper control by RBS over the activities of its G10 spot FX traders in London undermined market integrity and meant that misconduct went undetected for a number of years. RBS's control and risk functions failed to challenge effectively the management of these risks in the G10 spot FX trading business. RBS's failings in this regard allowed the following behaviours to occur in its G10 spot FX trading business: (1) Attempts to manipulate the WMR and the ECB fix rates, alone or in collusion with traders at other firms, for RBS's own benefit and to the potential detriment of certain of its clients and/or other market participants; (2) Attempts to trigger clients' stop loss orders for RBS's own benefit and to the potential detriment of those clients and/or other market participants; and (3) Inappropriate sharing of confidential information with traders at oter firms, including specific client identities and, as part of (1) and (2) above, information about clients' orders. These failings occurred in circumstances where certain of those responsible for managing front office matters were aware of and/or at times involved in behaviours described above. They also occurred despite the fact that risks around confidentiality were highlighted when RBS received client complaints in October 2010 and January 2012, and, in November 2011, a trader questioned whether it was inappropriate to share information with traders at other firms or with clients. RBS was on notice about misconduct associated with LIBOR / EURIBOR during the Relevant Period. The FCA issued a Final Notice and a financial penalty against RBS on 6 February 2013 in relation to benchmark setting for LIBOR. Against this background, RBS engaged in an extensive remediation programme across its businesses in response to LIBOR / EURIBOR, including taking important steps to promote changes to culture and values. Despite these improvements, the steps taken during the Relevant Period in its G10 spot FX trading business did not adequately address the root causes that gave rise to failings described in the Final Notice. The FCA has considered the nature and extent of co-operation provided by RBS during the course of its investigation. The FCA acknowledges that RBS acted promptly in bringing the behaviours referred to in the Final Notice to the FCA's attention. RBS has also provided extremely good co-operation and taken significant steps to assist the FCA in its investigation. RBS is continuing to undertake remedial action and has committed significant resources to improving the business practices and associated controls relating to its FX operations. The FCA recognises the work already undertaken by RBS in this regard. The Final Notice relates solely to RBS's conduct in its G10 spot FX trading business in London. It makes no criticism of any entities other than the firms engaged in misconduct as described in the Final Notice.