US-European relations sink to new low after BNP fine

US-European relations sink to new low after BNP fine

The past week was marked by two contrasting bank fines.

Goldman Sachs was fined $800,000 by US authorities for share trades it executed through its dark pool but the US bank did not admit to the charges.

The next day BNP Paribas was fined $9bn for breaking US sanctions, an allegation the French bank fully accepted and apologised for. It was a record fine for a criminal case against a bank.

Other large banks are expected to follow as the US Justice Department seeks to send a clear message to financial institutions.

But the size of the BNP fine is frankly eye-watering and raises questions about the commercial viability of the world’s fourth largest bank.

BNP Paribas’ future in the US is also thrown into doubt because the justice department has banned the firm from clearing in the US for one year starting on January 1 2015.

This has left BNP scratching around for a rival to handle that business for them, not a great position for the firm as it now has to come to terms with not only the fine but the prospect of its US business disappearing for one year and maybe never coming back.

The BNP fine is only the latest action by US authorities against international banks.

HSBC was fined $1.9 billion and apologised in December 2012 for money laundering on behalf of shady Mexicans and Russians.

Barclays, which has had its fair share of trouble in recent years, recently hired a top Wall Street law firm to help defend it against another US dark pool lawsuit that will likely result in a far larger fine than that imposed on Goldman.

The European firms will never say as much but they could be forgiven for feeling they have been singled out for treatment.

US and European regulators have not exactly seen eye-to-eye this year.

Europe has become increasingly frustrated with the insistence by its US counterparts that non-US firms must comply with the tough US Dodd-Frank Act, a position the US has maintained despite the fact that some European firms have flatly refused to trade in the US since the act became law.

A breakthrough seemed to have been made in February when the Commodity Futures Trading Commission and the European Commission agreed equivalence for European trading platforms that would allow them to trade in the US without complying with DFA.

Some five months later not one European firm has taken them up on the offer and their celebrated “Path Forward” again seems to have lost its way.

There are also conflicting messages coming out of Washington. The House Agricultural Committee, which controls the CFTC, signed off legislation in April to restrict the futures regulator’s ability to grant no-action relief letters to non-US firms.

The CFTC has in the past year been criticised widely for deferring decisions by issuing the last minute extension letters and the HAC was seen to be stepping in to bring its charge in hand.

But three months later the no-action relief letters are coming faster than ever, leaving non-US firms confused where they stand.

The CFTC has issued in the past weeks alone no-action letters to the Korea Exchange, an Australian broker, five Canadian banks and all non-US swap dealers.

The regulatory inconsistency between the US and European regimes is not news but the size of the BNP can only have increased further the tension between the regions.

Luke Jeffs

Editor, FOW