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By Kirstin Ridley and Joshua Franklin
LONDON/ZURICH, Nov 12 (Reuters) - Global regulators imposedpenalties totalling $3.4 billion on five major banks, includingUBS, HSBC and Citigroup, on Wednesdayfor failing to stop their traders from trying to manipulateforeign exchange markets.
Royal Bank of Scotland and JP Morgan werealso fined over attempts to rig currency benchmarks in ayear-long probe that has put the largely unregulated $5trillion-a-day market on a tighter leash, with dozens of dealerssuspended or fired.
Switzerland's UBS swallowed the biggest penalty, despitebeing the first bank to come forward with evidence of possiblemisconduct, paying $661 million to Britain's Financial ServicesAuthority (FCA) and the U.S. Commodity Futures TradingCommission (CFTC).
UBS was ordered by Swiss regulator FINMA, which also said ithad found serious misconduct of the bank's employees in preciousmetals trading, to hand over 134 million Swiss francs.
FINMA also instructed Switzerland's largest bank to automateat least 95 percent of its global foreign exchange trading andlimit bonuses for traders of foreign exchange and preciousmetals, where it said it had also found evidence of seriousmisconduct, to 200 percent of their base salary for two years.
Other UBS high earners will have to get approval for theirbonuses to go above that.
Regulators found evidence that traders had colluded to tryand manipulate benchmark foreign exchange rates by sharingconfidential information about client orders with one anotherright up until October 2013.
The traders used code names to identify clients withoutnaming them and created online chatrooms with monikers such as"the players", "the 3 musketeers" and "1 team, 1 dream" in whichto swap information.
The financial regulator in London, the global hub forforeign exchange (FX) trading, said it had launched a review ofthe spot FX industry that will require firms to scrutinise theirsystems and may involve them looking at how they do things inother markets such as derivatives and precious metals.
The FCA's first group settlement, worth more than $1.7billion, is the biggest in British history and eclipses the 460million pounds fines for alleged interest rate manipulation,reflecting increasing political and public demands that banks --blamed for sparking the 2008 credit crisis -- are heldaccountable.
The five banks earned a 30 percent discount for agreeing tosettle early.
"Today's record fines mark the gravity of the failings wefound and firms need to take responsibility for putting itright," the FCA's Chief Executive Martin Wheatley said.
"They must make sure their traders do not game the system toboost profits or leave the ethics of their conduct to complianceto worry about."
Barclays had been expected to be part of thesettlement but the FCA said its investigation into the UK bankwas continuing.
"NICE TEAM WORK"
Investors had been braced for a speedy conclusion to theinvestigation after an earlier, sprawling inquiry into allegedrigging of interest rate benchmarks such as Libor gaveregulators experience in how to cooperate globally.
In its settlement with HSBC, the FCA said that afterattempts to manipulate one sterling/dollar currency fix thatnetted a $162,000 profit, traders congratulated one another,saying "nice work gents... I don my hat" and "Hooray nice teamwork".
Under instruction from increasingly intrusive regulators,banks did much of the groundwork themselves, handing over reamsof online transcripts, clamping down on chatroom use and eithersuspending or firing more than 30 foreign exchange traders.
FINMA said it has started enforcement proceedings against 11former and current employees of UBS
With the UK settlement out of the way, the focus shifts to ongoing U.S. and UK criminal investigations and potential civillaw suits.
The CFTC, which regulated swaps and futures in the UnitedStates, fined the five banks more than $1.4 billion but thatdoes not resolve probes by the U.S. Department of Justice andthe New York's Department of Financial Services.
The FCA fines come days before world leaders are expected tosign off on proposals to reform currency markets when they meetat the G20 summit in Brisbane.
The foreign exchange probe proved particularly uncomfortablefor British authorities because it cast a shadow over London'scredentials as the world centre for foreign exchange trading,and also ensnared the Bank of England whose head Mark Carney isleading global regulatory efforts to overhaul the FX market.
The Bank of England said an internal probe had found noevidence that any of its officials had been involved in unlawfulor improper behaviour.
The Bank has fired its chief foreign exchange dealer afterit found information about serious misconduct, but said thedismissal was unrelated to a foreign exchangescandal. (Additional reporting by Steve Slater, Huw Jones, JamieMcGeever, Clare Hutchison and Matt Scuffham in London andKatharina Bart in Zurich. Writing by Carmel Crimmins, Editing byAlexander Smith)
