Citigroup Inc’s markets operation had hundreds of blind spots, allowing for potentially abusive transactions to go unnoticed in almost 900,000 trades processed every day at the bank’s Canary Wharf headquarters for more than two years.
Internal compliance teams found that their surveillance systems missed almost half of the second-most serious category of trading risk, the UK’s Financial Conduct Authority said as it imposed a £12.6mn ($15mn) penalty. Officials couldn’t effectively monitor trading activities for potential insider dealing and spoofing until early 2018, the FCA said.
The penalty comes after Citigroup, home to one of the world’s biggest investment banks, faced pressure from watchdogs in the US and the UK to improve its controls.
The Bank of England hit the New York-based lender with a record £44mn fine in 2019 for years of inaccurate reporting about its capital and liquidity levels, while US regulators doled out a $400mn fine in 2020 for persistent problems with risk management.
“The framework for market integrity depends on the partnership between the FCA and market participants using data to detect suspicious trading,” said Mark Steward, executive director of enforcement and market oversight at the regulator. “By not fully implementing the new provisions when required, Citigroup Global Markets did not carry its full weight in this partnership.”
In January 2018, when Citigroup’s compliance teams scrambled to assess the effectiveness of its automatic surveillance systems, they discovered that they had no oversight of almost half of what they called tier 2 trading risks. The surveillance gaps occurred across some of the bank’s largest businesses including rates and commodities.
The multiple shortcomings convinced Citigroup that it was not in compliance with European market-abuse laws, which the UK implemented in 2016.
“It does not appear that there was appropriate governance, regulatory change management oversight, or appropriate escalation to management about this issue,” the bank said in an internal update after the 2018 assessment.
The compliance group’s senior leadership team has since changed, the FCA said, and the identified surveillance gaps were fixed by the end of 2018.
Citigroup chief executive officer Jane Fraser is now overseeing a years-long campaign to shore up internal systems and data programs that will end up costing it billions. The bank agreed to resolve the FCA case, qualifying for a 30% discount on its fine. “Citi is pleased to put this matter behind us,” a spokesperson said.
In a separate case, the FCA’s own data engine picked up potentially suspicious trading by a Citigroup credit trader in late 2017 before the bank’s own compliance teams fired him for spoofing.
Citigroup houses one of the world’s biggest trading businesses, which makes billions of dollars every year from buying and selling everything from stocks and government bonds to complex derivatives. The division reported almost $15bn of revenue in 2017, about the same as the total revenue of global drinks retailer Diageo Plc that year.
The division, which traces its roots to former Wall Street powerhouse Salomon Brothers Inc., has a troubled recent history. Citigroup has paid billions of dollars in fines since the financial crisis after allegations that its traders helped to rig interest rates, abuse currency markets and sell shoddy mortgage-backed securities.
Some of these illicit trades emerged from Citigroup’s fixed-income trading division in London, which deals in products tied to interest rates, currencies, corporate debt and commodities. But in 2017, almost a decade after the financial crisis, risk officials were still struggling to properly monitor this business, the FCA report shows.
While Citigroup officials were comfortable with their oversight of the FX-trading business, they identified dozens of risks elsewhere at the fixed-income division, as well as in its equities unit, that were not under surveillance, according to the FCA report.
The headquarters of Citigroup at Canary Wharf in London. Citigroup’s markets operation had hundreds of blind spots, allowing for potentially abusive transactions to go unnoticed in almost 900,000 trades processed every day at the bank’s Canary Wharf headquarters for more than two years.