In relation to a £1.88 billion transaction arranged and executed in 2011 and 2012 for a number of ultra-high net worth clients, Barclays PLC BCS was penalized by the Financial Conduct Authority (FCA). The UK regulator levied a fine of £72.1 million ($109 million) on Barclays, claiming the bank went to "unacceptable lengths to accommodate the clients."
According to the FCA, Barclays failed to fully probe a group of wealthy and politically exposed persons (PEPs) in the £1.88 billion transaction, which required enhanced levels of due diligence and monitoring by the bank. The standard procedures for minimizing the risk of money laundering were not followed by the bank, which preferred “instead to take on the clients as quickly as possible and thereby generated £52.3 million in revenue.”
Though no financial crime took place at Barclays, the FCA claimed that the bank worked with rich clients in a way that could have resulted in a financial crime.
While the details of the transaction were not recorded in Barclays’ system, the bank agreed to indemnify the clients up to £37.7 million in the event that it failed to comply with the confidentiality restrictions. Therefore, instead of applying a “higher level of due skill, care and diligence”, it also fell short of the prerequisites for lower-risk profile business.
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.”
While the fine imposed is by far the largest one by the FCA or its predecessor for financial crime failings, the bank will have to hand back the £52 million of revenues it gained from the deal along with a penalty of £20 million.
Barclays said it “has co-operated fully” with the FCA throughout and “continues to apply significant resources and training to ensure compliance with all legal and regulatory requirements”.
Settlement Over LIBOR Manipulation
In a class action related to a lawsuit accusing the bank of inflating its stock price through manipulation of the London Interbank Offered Rate ("LIBOR"), Barclays agreed to shell out $14 million in settlement.
Shareholders led by Carpenters Pension Trust Fund of St. Louis and the St. Clair Shores Police & Fire Retirement System in Michigan alleged that Barclays and a number of former officers including former president of the company, Robert Diamond, deliberately misrepresented, precisely understated, the cost of borrowing funds by submitting false information regarding LIBOR in the period between August 2007and January 2009.
Barclays’ shareholders also alleged that during a 2008 conference call with market analysts, Diamond provided misguided statements regarding LIBOR, as he mentioned that Barclays was “categorically not paying higher rates in any currency”.
LIBOR is an important benchmark that financial institutions use to set the interest rates for lending purposes on numerous financial transactions. It is used to set interest rates in trillions of dollars worth of loans and investments.
Shareholders claimed that by suppressing LIBOR, Barclays presented a deceptive picture of its financial condition and artificially inflated Barclays’ share price. Notably, Barclays denied wrongdoing in agreeing to settle with plaintiffs and the settlement requires court approval.
While Libor manipulations by several banks have been detected by global authorities, we look forward to the gradual resolution of such matters. Deutsche Bank AG DB, UBS Group AG UBS and The Royal Bank of Scotland Group plc RBS are among several financial bigwigs that faced similar charges and reached settlements with regulatory authorities.
Barclays currently carries a Zacks Rank #3 (Hold).
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