Citigroup’s inability to hire a compliance professional cost the company $127 million

Citigroup’s ‘fat finger’ mistake of May 2, 2022 has proven costly. Not only did the bank lose $48 million (£38 million) on the day due to the error at its London Delta 1 desk, but it has now been fined £62m by UK regulators.

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The statements of both the FCA And PRA, published today are hard numbers for Citi’s equities business, which is already plagued by allegations of a culture by intimidation and bullying. They underline the importance of systems, but they also underline the importance of individuals, and especially of individuals in complying with them.

On the day the big-finger error occurred, the FCA found that Citi was understaffed. It was a Bank Holiday in London and people overseeing the execution of trades using CitiSmart, the bank’s algorithmic trading system, were on leave. Instead, the control function had therefore been transferred to the bank’s electronic execution desk, which did not immediately recognize the significance of the error. When another Citi team, the E-Trading Risk and Controls Team (ETRC), reported the trade to the bank’s electronic execution desk, no one responded. The ETRC team had to send another email four hours later.

The FCA says things could have been different if the desk monitoring CitiSmart transactions had been properly staffed. Not only were people on holiday, but Citi had an open role, which the FCA said the bank had been trying to fill “for a year”, despite its “efforts” to fill the vacancy.

The implication is that if Citi had fulfilled its open compliance duty, it could have saved itself $100 million in combined losses and fines. Underappreciated compliance officers everywhere can rejoice.

In a statement about today’s fine, a Citi spokeswoman 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 have taken immediate steps to strengthen our systems and controls and remain committed to ensuring full regulatory compliance.”

However, the PRA and FCA statements suggest that the ‘individual error’ was more than just a fleeting issue in 2022. The PRA specifically notes that “the duration of the company’s breaches continued over a period of four years”, and that a series of previous incidents had occurred and issues had been identified, dating back to 2018.

The PRA suggests, among other things, that there were deficiencies in the management of Citi’s equities business: there were no consistent reviews of warnings about breaches of pre-trade validation controls and no one ensured the controls were functioning properly. Equity industry managers have not imposed “adequate governance structures” around eTrading. And – most damningly – equity derivatives traders themselves made 985 changes to Citi’s pre-trade validation controls in a 13-month period between January 2020 and February 2021, without receiving approval from the Trading Risk and Compliance Council.

So not only was Citi’s compliance team understaffed, but it also appears to have been bypassed. While Citi has taken action to resolve the issues, they will increase pressure on Fater Belbachir, the bank’s London-based global head of equities, who joined from Barclays in August 2020. Belbachir is not mentioned personally by either supervisor.

Both the FCA and PRA note that many of the systematic failings in the London equities team’s controls did not occur in New York.

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