Wall Street banks are facing the threat of new and more damaging allegations about their rigging of foreign exchange markets, as New York’s banking regulator intensifies a probe into computer-driven currency trading — raising the prospect that the total penalties arising from the scandal will exceed the $10bn already paid.
The New York Department of Financial Services, run by Benjamin Lawsky, has become increasingly convinced that banks have been systematically abusing forex markets through the use of automated trades driven by computer algorithms, according to people familiar with its investigation.
Findings from the probe may indicate more widespread market abuse than US and UK authorities disclosed on Wednesday, when detailing their settlement with six global banks, the people added.
They pointed out that this $5.6bn settlement related to allegations of market manipulation in the forex spot market — but Mr Lawsky’s probe covers electronic trading, which accounts for the majority of forex transactions.
Trading platforms at Barclays and Deutsche Bank are being scrutinised by the DFS, and the regulator has also subpoenaed information from BNP Paribas, Credit Suisse, Goldman Sachs and Société Générale.
Its investigation into Barclays is the most advanced, and several bank employees have been called to give evidence, according to people familiar with the case. So far, the probe has led the agency to suspect that the bank intentionally sought to gain unfair advantages over clients and counterparties through its forex trading platform, the people claimed.
The DFS has reached similar initial conclusions in its Deutsche Bank probe but, as it is only at the document review stage, it is not as advanced as the Barclays investigation, the people said.
They added that the DFS investigations into the banks that received subpoenas are at an earlier stage and no initial conclusions have been reached.
All of the banks declined to comment.
On Wednesday, the US Department of Justice and other agencies announced that they had reached a $5.6bn settlement with Barclays, Citigroup, JPMorgan Chase, Royal Bank of Scotland and UBS over a series of allegations of foreign exchange manipulation.
However, while the DFS was one of the agencies involved in the settlement with Barclays, its trading platform investigation remains separate.
The regulator has jurisdiction over banks that hold a New York state banking license — which includes many foreign banks but excludes most domestic groups, which are overseen by other regulators.
On Wednesday, Mr Lawsky announced he would be leaving the agency in late June. He plans to start his own law and consulting firm, in addition to becoming a visiting scholar at Stanford University as part of the school’s cyber initiative.
Whoever replaces Mr Lawsky at the DFS is expected to continue his hardline approach to dealing with Wall Street banks, people familiar with the case said.