Wells Fargo Fined For FX Overcharging
Posted by Colin Lambert. Last updated: September 30, 2021
Wells Fargo has paid over $70 million in fines and redress after admitting to overcharging and providing false information to its FX customers over a seven-year period. The payments were part of a settlement of a fraud lawsuit brought by the US Department of Justice.
The bank has paid #35.3 million to 771 clients affected by its conduct, and $35.7 million to US authorities as a sanction. The behaviour saw Wells Fargo sales teams delay the execution of so-called “standing instruction” trades to the end of the day, when they could pick the most advantageous rate for the bank. These trades were, under many of the agreements with customers, meant to be executed within five minutes of the receipt of the Swift message.
Another tactic highlighted by the DoJ was the “big figure trick” whereby bank salespeople would deliberately invert the two middle digits on the exchange rate thus adding considerably to the spread (i.e. from 1.0123 to 1.0213). In a release the DoJ says if caught by the customer, the FX sales specialist would claim that it was simply a mistake of adjusting the wrong digit in the price. It cites one FX sales specialist as saying, “You can play the transposition error game if you get called out.”
The bank also quoted different spreads to different people at the same customer, the DoJ says, depending upon the level of sophistication of the customer trader. In certain instances, when customers contacted the bank to inquire about higher-than-agreed-upon pricing, FX sales specialists would give false explanations for the prices such as “time fluctuations” or other supposed events in the market. In a few cases, the DoJ says FX sales specialists provided customers false transaction data.
While acknowledging that Wells Fargo has dismissed 20 FX salespeople over the offences, which happened under a previous regime it should be noted, the DoJ also criticises the bank, noting, “By financially incentivising its FX sales specialists to overcharge FX customers while failing to take steps to ensure that FX sales specialists honoured pricing representations, Wells Fargo created an atmosphere in which employees openly joked about and celebrated taking advantage of the bank’s customers.”
It adds that prior to 2017, Wells Fargo failed to put meaningful or effective safeguards in place to ensure that FX sales specialists priced customer FX transactions in accordance with the terms represented in fixed-pricing agreements. Before that it had no meaningful or effective policies or procedures governing how fixed-pricing agreements should be negotiated, memorialised, recorded, or implemented, and provided no training to FX sales specialists concerning fixed-pricing agreements.
In addition Wells Fargo had no meaningful or effective process to systematically track the existence or terms of fixed-pricing agreements; no systemic process in place to monitor whether FX sales specialists were pricing FX transactions in a manner that was consistent with fixed-pricing agreements; and did not implement any electronic safeguards that would have prevented FX sales specialists from pricing transactions in a manner that deviated from fixed-pricing agreements. The bank also did not conduct any audits or reviews of FX transactions to determine whether FX pricing matched fixed-pricing agreements until 2017.
“We all put trust in our banking institutions to deal with us honestly, fairly, and transparently when we are their customers,” says US Attorney Audrey Strauss. “For the better part of a decade, Wells Fargo abused this trust, using tricks, false information, and other deceptive practices to fraudulently overcharge customers who used the Bank’s foreign exchange service. This settlement, which requires Wells Fargo to make its customers whole for their losses and pay a substantial penalty, sends a strong message to the banking industry that financial institutions who take advantage of their customers will be held to account.”