One of the largest penalties for system breaches, UK regulators punished Citigroup 61.6 million pounds ($78.5 million) for control lapses in its trading activities. In one instance, the Wall Street giant was responsible for a precipitous decline in European markets.
On Wednesday, the Prudential Regulation Authority (PRA) stated that issues at Citigroup Global Markets Limited (CGML) “crystallized into trading incidents”. The statement also detailed the conclusions of its inquiry.
The markets watchdog, the Financial Conduct Authority (FCA), and the PRA both investigated and penalized Citigroup for the shortcomings that occurred between April 2018 and May 2022. During this period, Citigroup faced penalties from both regulatory bodies.
Sam Woods, the CEO of the PRA and the deputy governor for prudential regulation at the Bank of England, stated that “firms involved in trading must have effective controls in place in order to manage the risks involved. CGML failed to meet the standards we expect in this area, resulting in today’s fine.”
The authorities’ findings show that on May 2, 2022, Citi processed an incorrect $444 billion order that was supposed to total just $58 million. This led to $1.4 billion in erroneous sell orders. As per the PRA, a trader’s error was the major source of the trading error, although Citi’s electronic trading system generated erroneous orders due to “primary control failings”.
Prior to the trade being canceled, the regulator stated that the error occurred “with a material short term movement” in multiple European indices.
The error was caused, according to the report, “especially by the absence of certain preventative hard blocks and the inappropriate calibration of other controls.”
Although the PRA had given Citi “repeated supervisory communication” to improve, the agency claimed that deficiencies continued.
A Citi spokesperson said the bank was “pleased to resolve this matter from more than two years ago, which arose from an individual error that was identified and corrected within minutes.”
The representative sent out an email stating, “We immediately took steps to strengthen our systems and controls, and remain committed to ensuring full regulatory compliance.”
Under the leadership of CEO Jane Fraser, Citi has been working to rectify pervasive and long-standing issues with its internal controls, data governance, and risk management. The Federal Reserve and the Office of the Comptroller of the Currency have issued regulatory notices in the US as a result of the shortcomings.
For deficiencies in its trading systems and controls, the PRA fined Citi 33.9 million pounds; however, this payment was lowered by 30% once Citi consented to fix the problem.
According to the FCA, Citi was fined 27.8 million pounds.
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