What is the £1 Billion Forex Lawsuit?
The extent of unfair trading in the foreign exchange market is being revealed as legal proceedings continue. In May, the European Commission issued fines totalling £936 million to five banks involved in forex rigging.
What is the Forex rigging scandal?
According to allegations, traders have been breaching British and European regulations and rigging currency markets. Traders were exchanging sensitive trading information and co-ordinating their activities in online chatrooms. Banks were strategising with the help of two cartels to exchange commercially sensitive data. Investigations named the cartels operating in this manner as “Three-Way Banana Split” and “Essex Express.” The five banks were not named until recently, but their involvement in manipulating the foreign exchange market for their own profits has now been exposed. According to the five-year investigation, the rigging occurred between 2007 and 2013. The European Commission already fined the banks in May, but further legal action is being taken. Investors who lost out as a result of rigging can make a claim against the banks.
What is the class action lawsuit?
In the UK, the Consumer Rights Act was updated in 2015, introducing opt-out class actions for breaching competition laws. It is a more effective way for victims to get compensation than the previous opt-in law (although claimants based overseas still have to opt-in). Under this new law, investors who suffered losses due to the illegal activities of the banks can file a civil case against them to claim financial compensation. A similar class-action lawsuit in the US resulted in more than $2 billion in settlements. The same US law firm, Scott + Scott, will be handling the proceedings in the UK case as well. This is a landmark case because it is the first time a class-action lawsuit is being brought against UK banks like in the US. The representatives will be taking legal action on behalf of a claimant group – in this case, the eligible investors who do not opt-out.
Which banks are being sued?
The five banks receiving large financial penalties from the European Commission have been named as:
- JP Morgan
None of the banks has made public comments about the situation and their involvement in it. Barclays and RBS are UK banks, while Citigroup and JP Morgan are US banks, and UBS is a Swiss bank. UBS is the only one of these named banks avoiding a penalty because it acted as a whistleblower and exposed the cartels first. However, it is still liable to be sued by investors in the civil lawsuit. Around the globe, the fines these banks received from eleven regulators add up to more than £6.9 billion. MUFG Bank in Japan has also been fined for its participation in one of the cartels, and Swiss bank Credit Suisse is still being investigated in this case.
Who is leading the lawsuit against the banks?
Former Pensions Regulator chairman Michael Higgins is leading the claim, which litigation group Therium is funding. He told Reuters that the value of the claim will likely be in excess of £1 billion. It will depend on the number of Forex trades in London and the impact that the rigging had on them. Lawyer David Scott, of the Scott + Scott firm bringing the legal action to court, said that it is difficult to build up a case from individual damages if they are not significant enough. This is why the newer law in the UK allowing for collective class action could make this the perfect case to be the first of its kind to succeed in the UK. The fines so far are regulatory punishments, but they do not compensate the investors targeted by the cartels. Scott + Scott has spent 2 to 3 years preparing to bring this case to trial to get justice and financial compensation for investors who suffered financial losses following the currency manipulation. Hopefully they will win their strong case.