UK regulators have levied a substantial fine of £61.6 million ($78.5 million) on Citigroup due to significant deficiencies in its trading operations controls. This penalty ranks among the largest ever imposed for system breaches. One such breach led to an incident where Citigroup's actions inadvertently caused a significant decline in European stock prices. The size and impact of the fine underscore the severity of the control failings within Citigroup's operations.
The Prudential Regulation Authority (PRA) revealed that problems within Citigroup Global Markets Limited (CGML) led to specific trading incidents. These issues were formally acknowledged in a statement released on Wednesday, which detailed the findings from the PRA’s investigation. The statement indicates that these problems were not isolated but instead crystallized into notable trading mishaps, highlighting systemic issues within Citigroup's controls.
The PRA and the Financial Conduct Authority (FCA), which serves as the markets watchdog, both conducted comprehensive investigations into Citigroup's control failings. These investigations spanned from April 2018 through May 2022, during which various deficiencies were identified. The joint efforts of the PRA and FCA culminated in the decision to impose fines on Citigroup, emphasizing the importance of maintaining robust controls in trading operations to prevent such incidents.
Sam Woods, who is the CEO of the PRA and also serves as the Deputy Governor for Prudential Regulation at the Bank of England, stressed the critical need for firms engaged in trading to have effective control measures in place to manage the inherent risks. He pointed out that Citigroup Global Markets Limited failed to meet the expected standards in this regard, which directly led to the significant fine imposed on the firm. Woods' statement highlights the regulatory expectations and the serious consequences of failing to adhere to them.
One particularly notable incident occurred on May 2, 2022, when Citigroup processed an erroneous order worth $444 billion, which was supposed to be only $58 million. This colossal error resulted in $1.4 billion in mistaken sell orders, as outlined in the regulators' findings. The PRA identified that while the immediate cause of the trading error was a trader's mistake, the root cause was more deeply embedded in the primary control failings within Citigroup's electronic trading system. These systemic issues allowed such a large error to occur.
The timing of this trading mistake coincided with a significant, short-term movement in several European stock indices before the erroneous trade was cancelled. The PRA noted that the error was exacerbated by the absence of specific preventative measures and the improper calibration of other control mechanisms. This lack of robust controls and preventive measures was a significant factor contributing to the trading blunder.
Despite receiving repeated communications from the PRA urging improvements in their systems, Citigroup's weaknesses persisted. The regulator’s findings suggest that Citigroup did not adequately address the issues highlighted by the supervisory body, leading to continued vulnerabilities in their trading operations. This persistent lack of improvement was a key factor in the decision to impose a hefty fine.
A spokesperson for Citigroup expressed that the bank was pleased to have resolved the matter, which originated over two years ago from an individual error that was quickly identified and corrected. The spokesperson emphasized that Citigroup immediately took steps to enhance their systems and controls following the incident. The statement reaffirmed Citigroup's commitment to ensuring full compliance with regulatory requirements and maintaining robust control measures to prevent similar issues in the future.
Under the leadership of CEO Jane Fraser, Citigroup has been actively addressing long-standing and widespread deficiencies in its risk management, data governance, and internal controls. These efforts are in response to regulatory notices from both the Federal Reserve and the Office of the Comptroller of the Currency in the United States. Fraser's initiatives reflect Citigroup's broader strategy to strengthen its internal processes and regulatory compliance.
As part of the resolution process, the PRA fined Citigroup £33.9 million specifically for failings in its trading systems and controls. This penalty was reduced by 30% as a result of Citigroup's agreement to settle the issue. The reduced fine highlights the regulatory practice of incentivizing firms to promptly address and resolve control deficiencies, thus promoting a proactive approach to compliance and risk management within the financial industry.
22.05.2024
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