After a global scandal that cost them $14 billion in fines and settlements, banks are taking no chances -- they’re even cracking down on currency traders for offenses as minor as uttering the f-word on the phone.

The pendulum has swung away from the relatively permissive environment of earlier this decade, when traders allegedly manipulated prices, front-ran clients and abandoned unprofitable trades -- actions that put their interests before those of customers. Former HSBC Holdings Plc currency boss Mark Johnson was the first to be convicted, and three ex-traders from other banks are scheduled to go on trial Oct. 9 in New York.

Traders today are subject to 24-hour Big Brother-style surveillance that goes beyond the scrutiny of equity and bond desks. It uses machine learning and artificial intelligence to lurk in chatrooms, listen in on phone conversations and flag anything that might carry the whiff of criminal or abusive practices. The clampdown was described by more than a dozen industry participants, including those flagged for rough language, who requested anonymity because they weren’t authorized to speak publicly.

“It has been a nightmare,” said Thomas Wind, head of foreign-exchange and trading at Woodman Asset Management AG in Zug, Switzerland. “No one can do anything.’’

After Wind sent a news article via instant message to a friend in Asia, the compliance department from the friend’s bank contacted him about violating rules, he said. Wind argued that sending a publicly available news story had to be above board. The compliance people said they’d continue to monitor the chat.

Trading Records
Electronic sleuths are also scrutinizing trading records, scanning for any unusual transaction sizes, suspicious timing or abnormal prices, said Steve LoGalbo, a director at NICE Actimize, which makes compliance, risk and financial crime software.

The snooping comes after the exposure of price-rigging shook the industry and prompted sweeping cleanup efforts by regulators and foreign-exchange executives. The three ex-traders -- Richard Usher, formerly of JPMorgan Chase & Co.; Chris Ashton, previously at Barclays Plc; and Rohan Ramchandani who was at Citigroup Inc. -- are charged with conspiring to fix the market while participating in an electronic chat room known as “the Cartel.”

Banks’ broker-dealer divisions spent about $2.3 billion on compliance from 2014 to 2017, with surveillance accounting for about half of that, according to an estimate from Danielle Tierney, a senior analyst at Boston-based Aite Group.

Cautious, Wary
Trader misbehavior has “opened the eyes of a lot of buy-side participants to be very cautious and wary” when dealing with banks, said Andy Maack, Vanguard Group Inc.’s global head of foreign exchange trading.

Two years ago, after Maack criticized a controversial practice, called last look, that allows dealers to back out of losing trades, several met with him and pledged to change the way they handled orders.

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