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Watchdog fines Citigroup £14m

The Guardian (UK): Watchdog fines Citigroup £14m

“This is the second largest financial punishment handed out by the City regulator after oil company Shell was fined £17m last year.”:

Jill Treanor

Wednesday June 29, 2005

Citigroup has been ordered to pay almost £14m to the Financial Services Authority as the penalty for a controversial trade in the government bond markets last year.

The world’s largest financial firm is being forced to hand over £9.9m of profits from the trade and pay a £4m fine because of failures to control its bond business. This is the second largest financial punishment handed out by the City regulator after oil company Shell was fined £17m last year.

The American banking group escaped more draconian regulatory action after the FSA concluded it had not deliberately tried to distort the bond market when the trades took place on August 2.

However, Citigroup’s reputation has suffered and it has been left out in the cold when European governments have considered bond issues.

Citigroup acknowledged the trading strategy – nicknamed Dr Evil – had harmed the business and insisted it wished it had never taken place. It involved using the MTS electronic trading system to sell as many bonds in 18 seconds as would usually be traded in an entire day. A trading error then forced Citigroup to buy back some of the bonds it had sold.

The regulator found the firm had breached two principles of the City code by failing to conduct its business with due skill, care and diligence and failed to control its business effectively. But it concluded Citigroup’s traders had not tried to distort market prices.

The FSA did not name individuals yesterday and neither did Citigroup, although six traders who have been on leave since February are now expected back at work in the coming weeks.

William Mills, chairman of Citigroup’s European corporate and investment bank, insisted nobody’s job had been terminated as a result of the trade – which was invented by a handful of traders in London who had been ordered to boost profits. Spiro Skordos has previously been named as the executor of the trade.

Citigroup had been braced for the fine ever since the FSA announced its investigation last year and made public apologies for its traders’ actions. Citigroup chief executive Chuck Price was quick to describe it as “knuckle-headed” while Tom Maheras, head of global capital markets, had said the firm “regretted” having done the transaction.

It ultimately led Citigroup to instigate annual ethics training for its staff.

The FSA listed Mr Prince’s personal intervention as one of the factors it had taken into account while considering the action it should take. In mitigation, it pointed out Citigroup’s staff are to receive training on market conduct while compliance officers are to sit on the trading floor to prevent a repeat performance.

Mr Mills acknowledged the trade had led to Citigroup being punished by some European governments. “There are a few mandates [for bond issues] where we can say we were taken out for the MTS issue.”

Legal experts said the fine sent a clear warning to other financial firms that the FSA would not tolerate lax controls.

Martyn Hopper, a partner at law firm Herbert Smith and a former senior member of the FSA’s enforcement team, said: “It sets quite a high benchmark in terms of standard of care. On its face value, [the FSA] will impose significant financial penalties where a firm doesn’t do anything deliberately wrong but makes mistakes when implementing strategy.”,,1516863,00.html

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