British regulators on Wednesday fined Citi 61.6 million pounds ($78.4 million) over flaws in the bank’s systems and controls that caused a flash crash in May 2022 due to a trader’s “typing error.”
The Financial Conduct Authority said on Wednesday that a Citi trader had intended to sell a basket of shares for $58 million, but manually created a basket worth $444 billion. While Citi’s controls blocked $255 billion of the trades, the remaining $189 billion of shares were sent to a trading algorithm and divided into portions that were sold throughout the day. About $1.4 billion in shares were sold across European exchanges before traders canceled their orders.
The error triggered a massive sell-off, with the OMX Stockholm 30 index dropping nearly 8% in five minutes. At one point, 300 billion euros evaporated. bloomberg reported at the time.
The FCA said in a statement on Citi’s system:There was no hard block that could reject this large and misguided basket of stocks as a whole. ” But Citi’s system also allowed traders to ignore pop-up warnings by manually disabling them, the regulator found.
This mistake “risked creating a disorderly market.” Steve Smart, FCA Co-Executive Director of Enforcement and Market Oversight.
“We expect businesses to review their controls and ensure they are appropriate given the speed and circumstances. Financial market complexity” Smart said.
According to the FCA, Citi did not dispute the findings and agreed to a settlement that reduced the penalty by 30%.
“We are pleased to have resolved this issue, which occurred more than two years ago. The issue arose from an isolated error and was identified and fixed within minutes,” Citi said in a statement published by the Financial Times, Reuters, and said in a statement seen by Bloomberg. “We took immediate steps to strengthen our systems and controls and remain committed to ensuring full regulatory compliance.”
The breakdown of the penalty is £27.8m from FCA; and £33.9 million from the Bank of England Prudential Regulation Authority, which carried out its own investigation.
The regulator said on Wednesday that between April 2018 and May 2022, Citi “received repeated supervisory notices from PRA regarding the need to strengthen transaction controls.” “Despite this effort and restoration work, [Citi] Although implemented during the relevant period, weaknesses in trade controls persisted.”
The so-called “fat finger error” that occurred in May 2022 was not the first mistake caused by manual input into Citi’s systems, nor is it the most notorious. Citi Employees in August 2020, Meaning of Remittance of Interest Payments Approximately $7.8 million With a loan from the cosmetics company Revlon, Manual Adjustment The company mistakenly used Citi’s funds instead of Revlon’s to send the entire amount, plus interest, to Revlon’s creditors years earlier than planned.
The case sparked a lengthy legal battle and likely prompted the Office of the Comptroller of the Currency and the Federal Reserve to issue consent orders requiring upgrades to the bank’s risk management, data governance, and internal controls.in addition to a $400 million fine.
Citi has poured billions of dollars into modernizing its patchwork of systems. This initiative, dubbed ‘Transformation’ with a capital T, has served as a cornerstone of the Jane Fraser era, alongside the bank’s broader reorganization.
