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Banks set aside as much as $7bn to pay fines for currency cheating

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Pedestrians walk past a branch of HSBC in central London November 3, 2014. HSBC's profits fell short of expectations in the third quarter after the bank set aside $1.8 billion for misconduct settlements and compensation for customers, including a potential fine for rigging currency markets.   REUTERS/Toby Melville  (BRITAIN - Tags: BUSINESS)

Pedestrians walk past a branch of HSBC in central London November 3, 2014. HSBC's profits fell short of expectations in the third quarter after the bank set aside $1.8 billion for misconduct settlements and compensation for customers, including a potential fine for rigging currency markets. REUTERS/Toby Melville (BRITAIN - Tags: BUSINESS)

REUTERS

Pedestrians walk past a branch of HSBC in central London November 3, 2014. HSBC's profits fell short of expectations in the third quarter after the bank set aside $1.8 billion for misconduct settlements and compensation for customers, including a potential fine for rigging currency markets. REUTERS/Toby Melville (BRITAIN - Tags: BUSINESS)

The world's biggest banks have set aside almost $7bn (€5.6bn) for potential settlements with regulators investigating allegations of collusion and manipulation in foreign exchange markets.

HSBC, which is Europe's largest bank, was the latest bank to make provisions in its most recent earnings report yesterday, putting aside $378m specifically for a potential settlement with Britain's Financial Conduct Authority.

HSBC is the last of six banks in talks with the FCA over a group foreign exchange settlement to report their results.

The other five also set aside substantial sums for litigation provisions.

Ulster Bank parent Royal Bank of Scotland and Barclays last week set aside $640m and $800m, respectively, specifically for settlements related to the global FX probe which has been running for a year.

This means the three British banks have made almost $1.8bn provisions in their latest earnings reports specifically for FX-related issues.

The near $7bn from eight banks, also including Deutsche Bank and Credit Suisse, isn't entirely for currency-related issues, although that's where the lion's share of the total is likely to be spent, analysts say.

Banks' provisions are cash earmarked to pay for costs or losses that are anticipated to occur in the future and the final amount may be more or less than the sum set aside.

However, with potential settlements still to come with the US Department of Justice - which has shown it has the power and willingness to levy multi-billion dollar fines on banks for financial misconduct - the final bill could be much higher.

Some ten other regulators around the world are also investigating.

The London-based FCA's talks with six banks are at an advanced stage and a settlement for between $2.4bn-$3.2bn could come later this month.

The six are RBS, Barclays, HSBC, Switzerland's UBS, and US titans JP Morgan and Citi.

Despite its position as the second biggest currency market bank in the world, Deutsche isn't part of these collective talks.

This settlement is likely to be based on banks acknowledging lax internal compliance, oversight failures and market conduct breaches by individual employees, but not deliberate manipulation of the $5 trillion-a-day market.

UBS ring-fenced the most of any single bank in the third quarter, setting aside $1.9bn.

Irish Independent