Financial services company Barclays has been fined GBP72m by the UK’s Financial Conduct Authority (FCA) in relation to a risky GBP1.88bn transaction.
The banking regulator reported on Thursday that it has fined Barclays for failing to minimise financial crime risks in a transaction that Barclays arranged and executed in 2011 and 2012 for several ultra-high net worth clients. The clients involved in the GBP1.88bn transaction were said to be politically exposed persons (PEPs) who should have been subject to enhanced levels of due diligence and monitoring by Barclays.
Although the FCA found no evidence that the transaction did not involve any financial crime, it discovered that the circumstances of the transaction resulted in a number of features that indicated a higher level of risk, along with the PEP status of the individuals. These features meant that Barclays should have adhered to a higher level of due skill, care and diligence, which the banking company failed carry out. Instead of following standard procedures, Barclays was found to have applied a lower level of due diligence than its policies required for other business relationships of a lower risk profile. The FCA added that Barclays preferred to take on the clients as quickly as possible, which resulted in the company generating GBP52.3m in revenue.
Reportedly the largest transaction of its kind that Barclays had executed for individuals, the transaction involved investments in notes backed by underlying warrants and third party bonds. The FCA declared that Barclays went to unacceptable lengths to accommodate its clients and because it did not wish to inconvenience the clients, it did not obtain information that it was required to obtain from the clients to comply with financial crime requirements. Also, it agreed to keep details of the transaction strictly confidential, even within the firm, as well as agreeing to indemnify the clients up to GBP37.7m in the event that it failed to comply with these confidentiality restrictions. The FCA ascertained that few people knew of the existence and location of the company’s due diligence records which were kept in hard copy and not on Barclays’ systems. This had detrimental impact on Barclays’ monitoring of the Business Relationship and also resulted in Barclays not being able to respond promptly to the FCA’s request for this information.
Barclays will pay the largest fine that has been imposed by the FCA and its predecessor the FSA for financial crime failings. The fine is comprised of a GBP19,769,400 penalty and a disgorgement of GBP52.3m, which is the amount of revenue that Barclays generated from the transaction.
Mark Steward, director of enforcement and market oversight at the FCA, commented:
“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.”