26th November 2015
The Financial Conduct Authority (FCA) has hit Barclays with a £72m fine, for failing to carry out appropriate client checks.
This is the largest ever penalty imposed by the regulator for financial crime failings.
The fine relates to a £1.88bn transaction which the banking giant arranged and executed in 2011 and 2012 for a number of ultra-high-net-worth clients.
The FCA found that the clients involved were politically exposed persons (PEPs) and have been subject to stricter checks.
While the transaction did not involve any criminal activity, the regulator said that its circumstances “gave rise to a number of features which, together with the PEP status of the individuals, indicated a higher level of risk”.
According to the FCA, Barclays actually applied a lower level of due diligence than its policies required for other business relationships of a lower risk profile and it did not follow its standard procedures, preferring instead to “take on the clients as quickly as possible and thereby generated £52.3m 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 individuals.
Barclays went “to unacceptable lengths to accommodate the clients”, the FCA said.
Specifically, Barclays did not obtain information that it was required to obtain from the clients to comply with financial crime requirements.
Barclays agreed to keep details of the transaction strictly confidential, even within the firm, and agreed to indemnify the clients up to £37.7m 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 it could not respond promptly to the FCA’s request for this information.
The fine comprises disgorgement of £52.3m, which is the amount of revenue that Barclays generated from the deal, and a penalty of £19,769,400.
Barclays agreed to settle at an early stage of the FCA’s investigation and therefore qualified for a 30% discount. Were it not for the discount the financial penalty would have been more than £80m.
Mark Steward, director of enforcement and market oversight at the FCA, said: “Barclays 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 revenue. This is wholly unacceptable.
“Firms will be held to account if they fail to minimise financial crime risks appropriately and for this reason the FCA has required Barclays to disgorge its revenue from the Transaction.”