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Canadian regulators have stepped into a long-running fight over alleged misbehaviour by foreign-exchange traders in which global giants of banking have already set aside more than $100-million in a class-action suit to compensate this country’s investors.

Still, Royal Bank of Canada and Toronto-Dominion Bank, which are poised to settle charges from the Ontario Securities Commission, as well as Bank of Montreal, which has not been named by regulators, remain as defendants in that lawsuit, which once sought $1-billion in damages from inappropriate trading in Canada.

The situation illustrates the twin paths of private litigation, where plaintiffs’ law firms move quickly to pursue alleged bad actors, and regulation, where government entities with superior investigative powers move more slowly.

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Monday, the OSC said it is pursuing settlements with RBC and TD in the first major Canadian regulatory action into the foreign-exchange matter. From 2011 to 2013, employees at both banks used electronic chat rooms “many hundreds” of times to share confidential customer information with foreign-exchange traders at outside firms, the OSC said in a statement of allegations. The traders at both banks had a “profit motive," the OSC said, to make more profitable trades, which would lead to bigger bonuses.

RBC said Monday the conduct covered by the OSC allegations occurred “many years ago,” and the bank has taken a number of steps to enhance its controls on its traders. A TD spokesperson said “serving clients with excellence and integrity is at the heart of our culture and we take matters of this kind extremely seriously."

The foreign-exchange controversy blew up in 2013 on news that traders at some of the world’s biggest banks had possibly colluded over the past decade, sometimes using chat rooms with names such as The Cartel, The Bandits’ Club and The Mafia. (The OSC has not alleged RBC and TD were part of those specific chat rooms.)

By November of that year, authorities in six countries had announced probes, but little was known about Canadian regulators’ actions. In 2015, however, Canadian law firms – Sotos LLP, Koskie Minsky LLP and Siskinds LLP – launched a class-action lawsuit that targeted banks they said represented 90 per cent of of the global foreign-exchange market and “a substantial portion” of Canada’s, where, in April, 2015, US$75-billion of currency was traded each day. Five of the banking defendants had already pleaded guilty in a U.S. criminal investigation.

To date, 12 banks, none Canadian, have settled the class-action suit and set aside nearly $107-million in total for Canadian investors, in amounts ranging from $450,000 to $21-million. The money will be distributed at the end of the class-action suit, after all the claims have been processed.

The three Canadian banks whose various affiliates and subsidiaries have been named as defendants – RBC, TD and BMO – are among the five banks that have not settled. The allegations have not been tested in court.

Bank of Montreal, which reported earnings Tuesday, did not return e-mails or calls with questions about the OSC and the class-action suit.

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Daniel Bach of Siskinds, one of the plaintiffs’ lawyers, says their argument is that there are investors who are “directly” harmed by the alleged conduct – major institutions that buy large amounts of foreign currency directly from the banks.

“The spread is the difference between what they will pay and what they will give for a given currency,” Mr. Bach said. “And that spread is basically like the commission on a stock. One of the things we allege is that spread was too wide. So the price for buying currencies is alleged to have been too broad and people who were directly engaging in [foreign currency] transactions, we say, paid too much.”

And there are those, Mr. Bach said, who were “indirectly” harmed, such as retail investors.

The individual plaintiff in the class-action suit is Christopher Staines, an investor residing in Komoka, Ont., who held numerous investment products through Phillips, Hager & North Investment Management, a wholly owned subsidiary of RBC, that were either exposed to the risk of foreign currency fluctuations or used investment products to mitigate those risks.

The OSC would not confirm Tuesday whether any additional Canadian banks are being investigated for similar foreign-exchange trading allegations. Settlement hearings for RBC and TD are scheduled for Friday.

When contacted by The Globe and Mail, the Bank of Nova Scotia stated it is “unaware of any investigation” by the OSC, while the National Bank of Canada said there have been “no such queries.” The Canadian Imperial Bank of Commerce declined to comment.

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