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Citigroup fined $79M by UK regulators over ‘fat-finger’ failures

British regulators have fined Citigroup 61.6 million pounds ($78.5 million) for mismanagement in its trading operations, one of the biggest sanctions for a systems breach that helped the Wall Street firm cause a sharp drop in European stocks.

The Prudential Regulation Authority (PRA) and market watchdog Financial Conduct Authority (FCA) have both investigated and fined Citigroup over mismanagement spanning from April 2018 to May 2022. , said in a statement Wednesday outlining the findings.

The bank’s London arm, Citigroup Global Markets Limited (CGML), has had a series of failures that have “crystallized into trading incidents,” the most shocking of which was a $444 billion loss in May 2022. It was an incorrect order.

The bank’s London unit had a series of failures that “crystallized into trading incidents,” the most shocking of which was a $444 billion erroneous order in May 2022. EPA

Sam Woods, CEO of the PRA and Deputy Governor for Prudential Regulation at the Bank of England, said: ‘Firms involved in trading must have effective controls in place to manage the risks involved. It must be done,” he said. “CGML has not met the standards we expect in this area, resulting in today’s fine.”

On May 2, 2022, Citi processed $444 billion in orders that were meant to be worth just $58 million, resulting in $1.4 billion in erroneous sell orders, according to regulators’ findings.

The PRA said the immediate cause of the trading error was trader error, known as a “fat finger” error, but that Citi’s electronic trading system generated the incorrect order due to a “failure of primary control.”

The regulator said the mistake coincided with “significant short-term fluctuations” in several European indexes before the trades were cancelled.

“In particular, the lack of specific preventive hard blocks and other inadequate coordination of controls” were behind the failures, the report said.

Citi had received “repeated supervisory communications” from PRA to improve, but weaknesses remained and Citi’s own systems had also identified problems, the regulator said, as a series of incidents highlighted deficiencies. authorities said.

On May 2, 2022, Citi processed $444 billion in orders that were meant to be worth just $58 million, resulting in $1.4 billion in erroneous sell orders, according to regulators’ findings. Reuters

A Citi spokesperson said the bank was “pleased to resolve this issue, which is more than two years old. This issue arose from an isolated error that was identified and corrected within minutes.” Stated.

“We took immediate steps to strengthen our systems and controls and remain committed to ensuring full regulatory compliance,” a spokesperson said in an emailed statement.

No hard block

Under CEO Jane Fraser, Citi has sought to address longstanding and widespread deficiencies in risk management, data governance and internal controls.

This failure has resulted in regulatory notices from the Federal Reserve and the Office of the Comptroller of the Currency in the United States.

Under Chief Executive Jane Fraser, Citi has been seeking to address widespread, long-standing shortcomings in risk management, data governance and internal controls. Reuters

The main method set up by the City of London to prevent traders from entering errors was through “hard blocks”, which prevent the system from executing trades when certain thresholds are reached.

But the PRA said Citi’s order management systems in Europe had far too few of these systems, and pointed out that Citi’s comparable trading desk in New York had hard blocks that prevented orders from being processed.

PRA said its May 2, 2022 order generated 711 alerts, 65 of which were hard blocks and the rest were “soft blocks” that traders could override, which were overridden on the same day.

Citi also failed to effectively monitor the transactions that caused the suspensions and warnings.

The reason, PRA said, was that the algorithmic system, which is the “first line of defense,” missed the mark.

City’s other monitoring team was then forced to hand over responsibility to another group due to staff absence, but the cover team failed to respond to the alert.

The regulator found that Citi had too few “hard blocks” in London preventing orders from passing. Reuters

“In fact, it was the trader who noticed the error and canceled the order approximately 15 minutes after entering it. As a result, the company’s risk management capabilities, which monitor trades in real time, were ineffective.” PRA stated.

The PRA fined City £33.9 million for failings in its trading systems and controls, but the fine was reduced by 30 percent after City agreed to resolve the issues.

The FCA announced it had fined Citi £27.8 million.

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