Citigroup has been hit with a £62m penalty by UK regulatory authorities for failing to stop a trading mistake involving $1.4bn that temporarily disrupted the European stock markets. Several such incidents over a four-year stretch from 2018 to 2022 led the regulators to term Citi’s trading controls as insufficient.
The imposed penalties include a £27.8m fine from the Financial Conduct Authority (FCA), and a £33.9m sanction by the Prudential Regulation Authority (PRA). The PRA conducted its own probe into the event. “Companies engaged in trading activities should establish robust controls to handle associated risks. Citigroup Global Markets Limited (CGML) didn’t live up to expected conditions, leading to the fine given today,” stated PRA’s CEO, Sam Woods.
The salient incident among these mishaps was a confusion caused by a London trader who entered wrong details, which resulted in selling $1.4bn shares mistakenly instead of the intended $58m. The trader’s incorrect inputs led to the formation of a share basket worth $444bn.
Even though Citi’s internal controls managed to prevent a $255bn worth erroneous trade, the unchecked $189bn orders were processed by a trading algorithm. A sale of $1.4bn shares occurred before the trader could correct the mistake, causing a temporary stock sell-off across several European markets.
Although certain elements of Citi’s trading control framework operated correctly, the FCA pointed out the absence or deficiency of key controls. The regulatory body criticised the lack of powerful grip that could have blocked such a huge mistaken share basket from entering the market. Moreover, the trader was allowed to skip a pop-up alert notification on the trade without having to verify the flagged alerts. Ineffective real-time monitoring of Citi resulted in delayed action on the trades, as per the regulator.
Citi chose to reach a settlement on the issue, leading to a reduction in the fine amount.
Citi has expressed relief over the resolution of a case that happened over two years ago, attributing it to an individual error which was recognised and promptly rectified. In a determination to avoid further mistakes, they’ve focused on reinforcing their systems and controls for rigourous compliance with regulations.
This isn’t the first occurrence of such an error disrupting Citi’s systems. The past years have witnessed instances, one in 2020, where the bank mistakenly transferred $900 million of its funds to Revlon’s creditors, which included hedge funds that contested the return of the money. However, the court ruled in favour of Citi and the money was returned. Despite this outcome, US regulators penalised Citi $400 million due to them not rectifying issues in their risk and control systems. This led to an order for Citi to enhance its processes and technology.
Jane Fraser, who assumed the role of Citi’s CEO in 2021, has emphasised that the development of risk and controls is of paramount importance to the bank. – As reported by The Financial Times.