UPDATE 1-HKMA says probe found no evidence of FX rigging

(Adds details, comments from banks)

HONG KONG, Dec 19 (Reuters) - Hong Kong's de facto centralbank said it found no evidence of rigging in Hong Kong's foreignexchange benchmark following an 18-month investigation into thetrading operations of 10 banks.

However, it identified "inappropriate" behaviour byindividual traders at Standard Chartered and Deutsche Bank.

The Hong Kong Monetary Authority's findings follow a globalinvestigation into the $5-trillion-a-day FX market whichresulted in six major banks paying $4.3 billion in penalties toU.S. and European regulators last month.

The FX-rate rigging scandal has sparked global outrage andis among the largest and most extensive regulatory probes in thehistory of the financial markets.

But the Hong Kong Monetary Authority said on Friday it hadfound no evidence of collusion among the banks it investigatedto fix the Treasury Markets Association FX rates or the FXbenchmark fixings of other jurisdictions.

"While no rigging of Hong Kong FX benchmark fixings wasfound in the investigation, we remind banks to be vigilant toensure the integrity of the FX market in Hong Kong," an HKMAspokesperson said.

The HKMA began the investigation into Bank of America MerillLynch, Barclays Bank, BNP Paribas,Citibank, Deutsche Bank, HSBC,JPMorgan Chase Bank, Royal Bank of Scotland,Standard Chartered Bank and UBS in the secondhalf of 2013 after getting information from overseas watchdogsand the banks concerned.

The regulator identified two separate instances in whichHong Kong traders appear to have attempted to manipulate theprice of currencies.

The HKMA said it had referred the cases to the relevantoverseas authorities and required the banks to take "appropriateaction" against the traders and review their controls.

A spokeswoman for Deutsche Bank said the firm had "fullycooperated with the HKMA's investigation and has taken action tofurther strengthen its control functions. The bank will continueto take appropriate remedial and disciplinary actions."

A spokeswoman for Standard Chartered said the bank hadalready "introduced various enhanced control measures" and "willcontinue to work closely with its regulators to furtherstrengthen its internal processes and oversight."

The investigation into more than 40 million internal andexternal communications among FX traders and bank staff alsorevealed "indiscretions" by traders at HSBC, Citi, BofA,Deutsche Bank, JP Morgan and RBS which may have resulted inclient information being disclosed to other banks.

A spokesman for HSBC said the bank "takes the conduct of itsstaff extremely seriously and will take whatever action isappropriate."

A spokesman for Citi said the bank "acted quickly uponbecoming aware of issues in our foreign exchange business and wehave already made changes to our systems, controls andmonitoring processes to better guard against improper behavior."

A spokesman for UBS said the bank no longer conducts FXtrading in Hong Kong but "continues to cooperate with ongoing FXand related investigations, globally".

A spokeswoman for BNP Paribas said the bank has fullycooperated with the HKMA and looks "to observe the higheststandards of integrity in the financial markets."

BofA and RBS declined to comment. Barclays and JP Morgancould not be immediately reached for comment. (Reporting By Michelle Price; Editing by Jacqueline Wong andHimani Sarkar)