IBS Journal December 2015


Barclays fined £72m for ‘poor handling’ of financial crime risks


Barclays HQ, London ©Eng66, Wikipedia


The UK’s Financial Conduct Authority (FCA) has fined Barclays Bank £72 million for its ‘poor handling’ of financial crime risks. This is the largest fine that has been


imposed by the FCA and its predecessor, the Financial Services Authority, for finan- cial crime failings. The FCA says the failings relate to a £1.88 billion transaction that Barclays arranged and executed in 2011 and 2012 for a number of ultra high net-worth clients. The FCA says the clients involved were polit- ically exposed persons (PEPs) and should therefore have been subject to enhanced levels of due diligence and monitoring by Barclays. Mark Steward, director of enforcement


and market oversight at the FCA, says: ‘Bar- clays ignored its own process designed to safeguard against the risk of financial crime and overlooked obvious red flags to win new business and generate significant reve- nue. This is wholly unacceptable. ‘Firms will be held to account if they


fail to minimise financial crime risks appro- priately and for this reason the FCA has required Barclays to disgorge its revenue from the transaction.’ The FCA says it hasn’t found the trans-


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action involved financial crime, but the cir- cumstances and the PEP status of the indi- viduals indicated a higher level of risk. Therefore, the FCA says this required


Barclays to adhere to a higher level of due skill, care and diligence but the bank failed to do this. In fact, Barclays applied a low- er level of due diligence than its policies required for other business relationships of a lower risk profile, according to the FCA. The FCA says Barclays did not follow its


standard procedures, preferring instead to take on the clients as quickly as possible and thereby generated £52.3 million in revenue. The transaction involved investments


in notes backed by underlying warrants and third party bonds. It was the largest of its kind that Barclays had executed for indi- viduals. The FCA says: ‘Barclays went to unac-


ceptable lengths to accommodate the cli- ents. Specifically, Barclays did not obtain information that it was required to obtain from the clients to comply with financial crime requirements. ‘Barclays did not do so because it did


not wish to inconvenience the clients. Bar- clays agreed to keep details of the trans- action strictly confidential, even within


the firm, and agreed to indemnify the cli- ents up to £37.7 million in the event that it failed to comply with these confidentiality restrictions. ‘Few people knew of the existence and


location of the firm’s due diligence records which were kept in hard copy and not on Barclays’ systems. This had a detrimental impact on how the business relationship was monitored by Barclays and also meant that Barclays could not respond promptly to the FCA’s request for this information.’ The FCA says it ‘makes no criticisms of


the clients’. The fine comprises disgorgement of £52.3 million, which is the amount of reve- nue that Barclays generated from the trans- action, and a penalty of £19.8 million. The FCA says Barclays agreed to settle


at an early stage of the FCA’s investigation and therefore qualified for a 30% (stage 1) discount. This discount does not apply to the £52.3 million in revenue that Barclays generated from the transaction’which has been disgorged as part of the overall pen- alty. Were it not for the 30% discount the financial penalty would have been over £80.5 million.


Antony Peyton


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