Barclays, Citibank, others must compensate 'wronged' forex market players, says UK mass-lawsuit lead

Barclays, Citibank and Royal Bank of Scotland are among six banks at risk from a planned UK mass lawsuit against them over foreign-exchange rate-rigging because thousands of market participants have been "wronged," the man heading up the claim has said.

In an interview with MLex, and ahead of a UK competition court hearing next week to manage the lawsuit, Phillip Evans also said the proposed claim, which seeks damages payouts for a variety of institutional and private investors worldwide, can make the UK's nascent class-action regime work better in the future.

At the end of last year, Evans — previously an inquiry chair at the Competition and Markets Authority, the UK's antitrust agency — filed the suit, as class representative, against the banks, also including JPMorgan Chase, UBS and MUFG Bank, over their involvement in a forex cartel between 2007 and 2013.

Barclays, Citigroup, RBS, JPMorgan and Japan's MUFG — formerly Bank of Tokyo-Mitsubishi UFJ — were fined more than 1 billion euros ($1.1 billion) following a settlement with the EU competition regulator in May last year. UBS, the whistleblower, wasn't finedchat. In two decisions, the regulator said bank staff coordinated trading that manipulated currency rates through two private online chat rooms monikered "Three-way Banana Split" and "Essex Express."

Evans' suit rivals that of another planned UK mass claim over the same behavior from Michael O'Higgins, a former head of the UK pensions regulator. O'Higgins' proposed suit doesn't target MUFG Bank.

'Hugely important'

Forex is "hugely important" for the functioning of the economy, Evans said, explaining the lawsuit's objectives.

"It is a great combination to […] help a class of people that have been wronged, and also help a system evolve in the right way," he said.

Evans is seeking payouts from the banks on behalf of institutional investors, such as pension funds, asset managers, hedge funds, mutual funds, as well as large companies, public bodies and private individuals that, he argues, were harmed by rate-fixing.

His lawsuit, like the one proposed by O'Higgins, is an "opt-out" claim, which means UK-domiciled groups are automatically included and non-UK domiciled entities can also choose to join in. That is likely to pique the interest of currency investors across major trading zones such as Europe, the Middle East and Asia, which are active on London's forex trading market — one of the biggest in the world by volume and value of trade.

But the bid to win redress for a large class is dependent on a legal regime in its infancy. To get the go-ahead, Evans' claim must first be approved by the Competition Appeal Tribunal, the UK's specialized competition court. Since consumer laws were changed five years ago to encourage mass claims, no claim has so far met the court's tests to be certified to proceed to a full trial.

Evans said his "primary motivation" for bringing the claim is to "get the system working as well as it possibly can." "The primary issue is 'how do you get a regime like this to work properly to the benefit of the economy?' [and] actually making the system work an awfully lot better."

Whether Evans is a suitable class representative to bring the claim is a key consideration for competition judges. Evans believes his professional background makes him ideally suited to represent the class. In addition to his role at the CMA, he was a senior policy adviser for consumer body Which?, and is a special adviser for competition and consumer matters at FIPRA International, a European public affairs consultancy.

"I became convinced it was something we had to do," said Evans on the development of the UK's class-action regime. "It has been an ongoing battle."

It's likely that the CAT will review both Evans' and O'Higgins' applications and decide whether one, or both, of the claims should be permitted to proceed. For the CAT, assessing the merits of two competing "opt-out" claims is unchartered territory, and its decision will be closely watched by class-action litigants.

'Edmund Hillary'

The regime has started slowly, but it's gathering momentum, with lawsuits — as well as against banks over forex trading — proposed against truckmakers and rail companies over alleged anti-competitive behavior. All bids to certify the claims for approval have been put on ice by competition judges as the landmark claim for the regime — against Mastercard over unlawfully-inflated card fees — is being fought and has reached the UK's Supreme Court, with a ruling expected at the end of this year.

"I just don't think we have had an awful lot of cases. [For] any new regime which has new power, it takes time to work out how to do it well. It is always evolving," said Evans. "Getting early cases right is an incredibly important thing for the evolution of the system."

Despite the complications of navigating new areas of law, Evans said he has no concerns about targeting a market with the scale and reach of forex. "I would go the Edmund Hillary route because it is there. You have to deal with the cases you have got before you."

Moreover, Evans said the behavior of the banks has already resulted in payouts. In 2018, 15 banks, including Barclays, RBS and UBS, paid out more than $2.3 billion to settle a US class-action suit over the same issues. "There is precedent of this case being litigated," said Evans.

Evans said that, with so many moving parts, the value of the claim can change from original estimates. "When you get a case at this stage of its life, everything is in. Then you pare it down. Once the thing progresses, it will change," he said.

Data tests

In assessing a mass claim for certification, the CAT will consider if it's eligible for inclusion in collective proceedings based on certain criteria: an identifiable class, common issues and suitability. That has raised legal questions, and the CAT has said the claim against Mastercard posed issues over data requirements to attribute loss and distribute aggregate damages to individual class members.

Evans said he expects there will be the data, including from banks disclosing forex trades, in the granular detail needed to make his claim a success.

Only spot foreign-exchange trading and forward transactions — agreements to exchange currency in the future at a specified rate — are covered by the class action. Those trades are specific to a defined basket of currencies known as the "G10," including the pound, euro, yen and US dollar.

Evans also has split the class into two: losses from direct infringements through transactions with the defendant banks, and losses suffered due to "umbrella" effects of the infringements. That means that even those who didn't trade directly with the six banks could still be part of the class. For Evans, splitting the class into two means the claim's economic experts at trial, should it get to that stage, can adopt different approaches to calculate how much the prices of trades were artificially inflated.

On the data hurdles to be met, Evans said that there is publicly-available data on forex markets to assist with the claim, and the full picture will become clear after the banks hand over their trading data.

Another test set by the CAT is that the class representative must have the resources to fund the claim and pay the defendants' costs if ordered, meaning third-party funding is seen as crucial for certification. Evans is working with Bench Walk Advisors, a specialist litigation funder, to bring the claim.

As the UK's mass-action culture develops, the use of settlement agreements to avoid costly litigation, as seen elsewhere, is likely to gain traction.

"Settlements are a great thing if they get recompense to people who have been wronged — quickly, fairly and reasonably. The downside is you don't necessarily get the jurisprudence to allow future cases to develop," said Evans. "It is very important to me that we do view the case in that context: To get the system to function better."