Fed ends nearly-decade-old enforcement against BNP Paribas

• Key insight: Nine years after the French bank and its U.S. subsidiaries were caught up in a price-fixing scandal, the Federal Reserve has given its internal controls and oversight practices a clean bill of health. 
• Expert quote: “It is not BNPP’s goal to merely reactively address the issues identified in these regulatory matters; BNPP strives to lead the industry’s efforts to strengthen compliance and controls surrounding FX trading activities.” — BNP Paribas in a 2018 filing with the Securities and Exchange Commission.
• Forward Look: With the supervisory black mark removed from its record, BNP Paribas could have an easier time expanding its business. 

The Federal Reserve has ended a nearly-decade-old enforcement action against French bank BNP Paribas and its U.S. subsidiaries.

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The central bank terminated a cease and desist order against the French bank in 2017 for its weak internal controls that allowed foreign exchange traders to collude with one another and rig currency markets. The Fed ended the order last week but did not announce it publicly until Thursday.

Between 2007 and 2013, at least a dozen BNP Paribas employees in New York and elsewhere around the world used fake trades to manipulate currency prices and spreads, according to New York State’s Department of Financial Services. They also shared confidential customer information and misled customers about trades executed on their behalf.

Dozens of traders at BNP Paribas and other banks — including Barclays, UBS and Deutsche Bank — were also embroiled in the scandal and terminated.

One trader, Jason Katz, who worked on BNP Paribas’ Central and Eastern Europe, Middle East and Africa desk, pleaded guilty to price-fixing charges in early 2017 — the conviction also resulted in the Fed banning Katz from banking. The following year, BNP Paribas USA pleaded guilty for its role in the price-fixing and agreed to pay a fine of $90 million. 

Along with the bank’s criminal settlement, BNP Paribas and BNP Paribas USA were fined $350 million by the New York regulator. They, along with BNP Securities Corp., also received a $246 million penalty from the Fed. 

The Fed found that BNP Paribas lacked the internal governance, compliance and audit functions to root out and prevent the forex manipulation. The bank agreed to address these issues and be subjected to more stringent reporting requirements and oversight.

In a 2018 filing with the Securities and Exchange Commission, BNP Paribas asserted that the conduct was “not widespread, nor was it pervasive,” arguing that it all stemmed from a single business unit. The bank noted that it conducted a sweeping internal investigation to confirm that similar behavior was taking place elsewhere in the organization and also cooperated with probes by the Department of Justice and financial regulators.

“BNPP appreciates the seriousness of the issues underlying the FX matters and has already undertaken significant work in an effort to promptly remediate any weaknesses in its FX compliance and controls program,” the company wrote in the January 2018 filing. “It is not BNPP’s goal to merely reactively address the issues identified in these regulatory matters; BNPP strives to lead the industry’s efforts to strengthen compliance and controls surrounding FX trading activities.”

With the cease and desist order lifted, BNP Paribas could have an easier path to expanding its branching footprint or venturing into new lines of business that need regulatory approval, all of which can be hampered by an ongoing enforcement action.