November 12, 2014 / 9:38 AM / 5 years ago

UPDATE 2-Barclays pulled out of FX settlement due to NY regulator -sources

(Updates with Breakingviews links)

By Steve Slater

LONDON, Nov 12 (Reuters) - Barclays did not join a group settlement over the alleged manipulation of foreign exchange rates because of complications with its regulator in New York, people familiar with the matter said.

London-based Barclays is regulated by the New York State Department of Financial Services (DFS), unlike any of the other five banks who agreed a $3.4 billion settlement with British, U.S. and Swiss regulators on Wednesday.

Barclays had been expected to be part of the settlement with Britain’s Financial Conduct Authority (FCA) and U.S. Commodity Futures Trading Commission (CFTC), but three people familiar with the matter said it pulled out because of issues with its regulation by New York’s DFS, whose Superintendent Benjamin Lawsky has aggressively pursued wrongdoers in recent years.

It was not clear if Lawsky’s office blocked Barclays from joining the settlement or if the UK bank chose to pull out due to fears it could lose its New York banking license if it admitted wrongdoing.

The bank said it had “engaged constructively” with the FCA and CFTC and considered a settlement with them on terms similar to those agreed by other banks.

“However, after discussions with other regulators and authorities, we have concluded that it is in the interests of the company to seek a more general coordinated settlement,” it said in a statement. It declined further comment.

The five banks to settle with the FCA and CFTC were UBS , JPMorgan, Citigroup, Royal Bank of Scotland and HSBC.

Lawsky, who started his investigation into possible manipulation of currency markets in February, chose not to coordinate a settlement with other regulators because he viewed those deals as too weak, a person familiar with the regulator told Reuters last week.

Lawsky grabbed headlines in 2012 when he threatened to revoke the license of Britain’s Standard Chartered.

Bank regulation is fragmented in the United States, with state and federal authorities responsible for different activities.

The New York DFS was created in 2011 and supervises foreign and wholesale banks and some other firms. It regulates 87 branches of foreign banks, including Barclays, Deutsche Bank and BNP Paribas, but it does not regulate the U.S. arms of HSBC, RBS or UBS. (Additional reporting by Katharina Bart in Zurich; Editing by David Holmes)

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