UK's Operation Dovercourt forex probe comes in on time

By Steve Slater and Kirstin Ridley

LONDON, Nov 12 (Reuters) - A year ago Tracey McDermottmarked mid-November 2014 in her diary for when Britishregulators and their U.S. counterparts should aim to bring bigbanks to a co-ordinated settlement over allegations that theyhad manipulated currency markets.

But even her boss expected that timetable to slip.

Martin Wheatley, the chief executive of Britain's FinancialConduct Authority (FCA), told Reuters on Wednesday that nailingthe landmark settlement had been "touch and go" and thereforehad "managed expectations" by publicly stating that he onlyexpected a conclusion in 2015.

McDermott, head of the FCA's enforcement and financial crimedivision, proved correct in her prediction earlier on Wednesday,levying a record $1.4 billion of fines on five banks, Citigroup, UBS, HSBC, Royal Bank of Scotland andJPMorgan, for failing to stop their traders trying torig foreign exchange prices from 2008 to 2013.

U.S. regulators the Commodity Futures Trading Commission andthe Office of the Comptroller of the Currency, along withSwitzerland's FINMA, also imposed penalties, taking the totalbill for the five banks plus Bank of America to $4.3billion.

The FCA formally launched its investigation, dubbed'Operation Dovercourt', in October last year.

McDermott was initially unsure how many banks or otherregulators would join, but knew it might suit banks keen toavoid the kind of first mover disadvantage suffered by Barclays when the British bank settled ahead of other banks in2012 over allegations of Libor interest rate rigging, only tofind itself at the centre of the ensuing public furore.

Ironically Barclays' board decided to pull out of theforeign exchange group settlement just hours before it wasannounced, over concerns that the deal could affect a separateinvestigation into forex trading by the New York regulator, theDepartment of Financial Services.

OUTSOURCING DOVERCOURT

The FCA had identified what it considered to be the sixworst offending banks and sounded them out in July and Augustabout a potential group settlement.

Then, in the week of Sept. 22 the FCA formally visited allsix to tell them what their fines would be, people familiar withthe matter said.

They had until Nov. 7 to respond, and a settlement wasearmarked for the following week. That also put down a markerfor overseas regulators to coordinate their action with London,the centre of 40 percent of foreign exchange trading, theworld's biggest financial market.

The CFTC and FINMA coordinated their penalty announcements just days before the FCA went to press at 0600 GMT on Wednesday.

Banks have spent tens of millions of pounds each on theinvestigation, as the FCA effectively "outsourced" much of theforensic work to bank staff and external lawyers -- despitehaving a team of 70 of its own employees working on the case.

To silence critics who accused the watchdog of effectivelyallowing the industry to run its own investigation, the FCA saysit gave banks detailed directions on the data it wanted,including key words to search for in email and chatroomconversations, and also asked banks to conduct interviews.

Some banks also said they started internal investigationsinto their foreign exchange trading desks around June 2013.

RBS said clients complained about currency trading practicesin 2010 and 2012, and a trader raised further concerns in 2011.RBS Chairman Philip Hampton said on Wednesday he regretted thebank did not act quicker to investigate. (Additional reporting by Jamie McGeever and Matt Scuffham;Editing by Greg Mahlich)