Citi Fined $79 Million Over 'Fat Finger' Incident

Flash Crash in European Market

On May 2nd, 2022, while most of the world was still recovering from the Labor Day festivities, a sudden crash occurred in the European stock market. The cause of this unexpected event was traced back to a London-based Citi index trader's calculation error, which led to a flash-crash in Stockholm. The incident was reported to have cost the bank around $50 million.

The 'Fat Finger' Incident

The UK's Financial Conduct Authority (FCA) attributed the flash-crash to an 'inputting error', more commonly known as a 'fat finger'. The trader in question had intended to sell a basket of equities worth $58 million. However, due to an error in inputting the order, a basket worth $444 billion was created instead.

The Aftermath

Following this incident, Citigroup faced a hefty fine of £61.6 million ($79 million). The FCA fined Citigroup £27.77 million for the blunder, while the Prudential Regulatory Authority imposed an additional £33.88 million penalty. The authorities cited poor design of the bank's systems and ineffective real-time monitoring as the reasons for the fine. The FCA stated that the bank lacked primary controls, and there was no mechanism to reject large erroneous orders, which led to the execution of over a billion pounds of erroneous orders.

Citigroup's Response

Responding to the incident, Citigroup stated that the matter, which occurred over two years ago, was due to an individual error that was identified and corrected within minutes. The bank assured that immediate steps were taken to strengthen their systems and controls and reiterated their commitment to ensuring full regulatory compliance.

Past Blunders

This is not the first time Citigroup has made such a mistake. In 2020, the bank accidentally wired $900 million in interest payments to the lenders of cosmetics company Revlon, which was over 100 times the intended amount. While some lenders returned the money, others did not. A US district court judge ruled in 2021 that the bank would not be allowed to recover the outstanding $500 million.

Context of the Fine

For a bit of context regarding the fine, Citi made $4.037 Billion in Equities trading in 2023.

Thoughts on the Matter

While such errors can be chalked up to human mistake, they raise questions about the robustness of the systems and controls in place at major financial institutions. How can these institutions better safeguard against such costly blunders? What do you think about this incident? Share your thoughts and this article with your friends. And remember, you can sign up for the Daily Briefing, which is everyday at 6pm.