May 14, 2015 / 10:06 PM / 2 years ago

SEC a stumbling block in banks' forex guilty pleas: sources

The seal of the U.S. Securities and Exchange Commission hangs on the wall at SEC headquarters in Washington, June 24, 2011.Jonathan Ernst

NEW YORK (Reuters) - Banks want assurances from U.S. regulators that they will not be barred from certain businesses before agreeing to plead guilty to criminal charges over the manipulation of foreign exchange rates, causing a delay in multi-billion-dollar settlements, people familiar with the matter said.

In an unprecedented move, the parent companies or main banking units of JPMorgan Chase & Co (JPM.N), Citigroup Inc (C.N), Royal Bank of Scotland Group Plc (RBS.L), Barclays Plc (BARC.L) and UBS Group AG UBSG.VX are likely to plead guilty to rigging foreign exchange rates to benefit their transactions.

The banks are also scrambling to line up exemptions or waivers from the Securities and Exchanges Commission and other federal regulators because criminal pleas trigger consequences such as taking away a the ability to manage retirement plans or raise capital easily.

In the past, waivers have generally been granted without a hitch. However, the practice has become controversial in the past year, particularly at the SEC, where Democratic Commissioner Kara Stein has criticized the agency for rubber stamping requests and being too soft on repeat offenders.

Negotiating some of the waivers among the SEC's five commissioners could prove challenging because many of these banks have broken criminal or civil laws in the past that triggered the need for waivers.

Many of the banks want an SEC waiver to continue operating as "well-known seasoned issuers" so they can sell stocks and debt efficiently, people familiar with the matter said. Such a designation allows public companies to bypass SEC approval and raise capital "off the shelf" - a process that is speedier and more convenient.

Several of the people said another waiver being sought by some banks is the ability to retain a safe harbor that shields them from class action lawsuits when they make forward-looking statements.

The banks involved are also seeking waivers that will allow them to continue operating in the mutual fund business, sources said.

At least some of the waivers at issue in the forex probe will need to be put to a vote by the SEC's five commissioners. No date has been set yet, a few of the people familiar with the matter said.

The plea deals could be announced as soon as next week, two of the people said, adding that not all the penalties had been finalized yet.

Peter Carr, a spokesman for the U.S. Justice Department, declined comment on the timing or reason for a possible delay of any agreements. Citi, JPMorgan, RBS and UBS did not respond to requests for comment. A Barclays spokesman declined to comment.

The Justice Department has been negotiating with the banks for months over how to resolve allegations that traders colluded to rig rates in the largely unregulated $5.3 trillion-a-day currency market.

If the parent companies of U.S.-based JPMorgan and Citigroup plead guilty as planned, it would be the first time in decades that a major American financial institution has done so.

Last year, when Swiss bank Credit Suisse AG CSGN.VX pleaded guilty in the United States to helping wealthy Americans evade taxes, it became largest institution in over 20 years to admit criminal wrongdoing. It was soon followed by French banking group BNP Paribas SA (BNPP.PA).

Reporting by Karen Freifeld, Sarah N. Lynch and Soyoung Kim. Editing by Andre Grenon

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