Major Blunder Costs Citigroup Over £61 Million in Fines

In a case highlighting risks around computer-driven trading, Citigroup's UK subsidiary was slapped with $68 million in fines by British regulators after a trader's fat-finger error caused over $1.4 billion of equities to be accidentally sold in a matter of minutes.

The Prudential Regulation Authority (PRA) fined Citigroup Global Markets Limited (CGML) £33.9 million while the Financial Conduct Authority (FCA) imposed a £27.8 million penalty. The combined £61,646,200 in fines resulted from parallel investigations by the two regulators into the trading incident on May 2nd, 2022 and broader deficiencies in CGML's trading controls between April 2018 and May 2022.

The incident began when a CGML trader meant to sell a $58 million basket of shares, but incorrectly entered an order 7,600 times larger at $444 billion. Although internal controls blocked $255 billion of the whale trade, the remaining $189 billion portion was unleashed into the market via an automated trading algorithm.

Over the next 30-60 minutes, CGML's systems rapidly sold $1.4 billion worth of European equities, temporarily causing wild price swings and dizzying volatility across the continent's stock markets before the error could be identified and the order stopped.

In their dual enforcement actions, UK regulators found CGML's trading controls to be shockingly lacking over the multi-year period examined. There was no hard limit to automatically reject such an absurdly large "fat finger" trade from even reaching the market. Worse, the firm's controls allowed the human trader to manually override risk alerts without being forced to review all the critical details.

"This is a total systems and controls failure allowing an unimaginably large trade to go ahead," said Justin Biddle, a regulatory partner at Clutch Group. "The potential ramifications of a $1.4 billion fire sale could have been disastrous if it hadn't been quickly stopped."

The PRA said CGML had received repeated warnings about the need to strengthen its trading controls but remediation efforts were incomplete. PRA CEO Sam Woods stated "firms involved in trading must have effective controls in place in order to manage the risks involved."

CGML's parent Citigroup said it has taken steps to improve its trading risk management after the May 2022 incident. However, the US bank chose not to contest the FCA and PRA's findings, allowing it to receive a 30% settlement discount from the initial £69 million combined penalty.

As computer-driven trading becomes more prevalent, the case serves as a stark reminder that robust risk controls and human safeguards are vital to preventing costly errors that can upend markets.

The GRC Report is your premier destination for the latest in governance, risk, and compliance news. As your reliable source for comprehensive coverage, we ensure you stay informed and ready to navigate the dynamic landscape of GRC. Beyond being a news source, the GRC Report represents a thriving community of professionals who, like you, are dedicated to GRC excellence. Explore our insightful articles and breaking news, and actively participate in the conversation to enhance your GRC journey.