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UK regulators have fined Citigroup £62mn for failing to prevent a fat-fingered $1.4bn trading error that briefly convulsed European stock markets.
The incident in May 2022 was one of several spanning a four-year period in which regulators say that Citi’s trading controls were inadequate.
As a result, the Financial Conduct Authority on Wednesday levied a £27.8mn fine on the US bank while the Prudential Regulation Authority, which conducted its own investigation, imposed a £33.9mn penalty.
“Firms involved in trading must have effective controls in place in order to manage the risks involved. CGML [Citigroup Global Markets Limited] failed to meet the standards we expect in this area, resulting in today’s fine,” said Sam Woods, chief executive of the PRA.
While the failures relate to the period between 2018 and 2022, the most notable incident was the mistaken sale of $1.4bn of shares after a London-based trader typed in the wrong figures.
According to regulators, the trader intended to sell a basket of shares with a value of $58mn but entered details that instead created a basket valued at $444bn.
Citi’s internal controls blocked $255bn of the erroneous trade, but orders worth $189bn were sent a trading algorithm to execute. About $1.4bn of the shares were sold before the trader managed to cancel the order.
The incident triggered a brief sell-off across several European markets during what would normally have been a quiet Monday morning trading session.
Although parts of Citi’s trading control framework worked as expected, the FCA said that some primary controls were “absent or lacking”. There was no block in place that would have prevented such a large erroneous basket of shares reaching the market, it said.
It added that the trader was able to manually override a pop-up alert on the trade without having to scroll down to check which alerts were flagged. Citi’s real-time monitoring was ineffective, resulting in a slow response to the trades, the regulator said.
Citi agreed to settle the case and so qualified for a discount on the fines
In a statement, Citi said: “We are pleased to resolve this matter from more than two years ago, which arose from an individual error that was identified and corrected within minutes. We immediately took steps to strengthen our systems and controls, and remain committed to ensuring full regulatory compliance.”
It is not the first time Citi’s systems have been compromised by human error.
In 2020, the bank accidentally wired $900mn of its own money to creditors of cosmetics group Revlon, including hedge funds that refused to return it. Although a court forced the funds to return the money, US regulators fined Citi $400mn for failing to correct deficiencies in its risk and control systems, and ordered it to upgrade its processes and its technology.
Since becoming Citi chief executive in 2021, Jane Fraser has stressed that improving risk and controls are a priority for the bank.
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