Barclays fined £72 million for poor checks on high net worth clients

  • Prasun Sonwalkar, London
  • Updated: Nov 26, 2015 16:41 IST
The fine of £72,069,400 is the largest that FCA has imposed for financial crime failings. (Reuters File Photo)

Britain’s Financial Conduct Authority (FCA) fined Barclays more than £72 million on Thursday for failing to minimise the risk that it could be used to facilitate financial crimes while dealing with a £1.88 billion-transaction.

The fine of £72,069,400 is the largest that FCA has imposed for financial crime failings. The transaction involved what the authority called “politically exposed persons” (PEP).

The failings relate to the £1.88 billion-transaction that Barclays arranged and executed in 2011 and 2012 for a number of ultra-high net worth clients.

The clients involved were PEPs and should have been subject to enhanced levels of due diligence and monitoring by Barclays, FCA said. The nationality of the PEPs was not disclosed.

PEPs are individuals whose prominent position in public life may make them vulnerable to corruption. The definition extends to immediate family members and known close associates.

“While the FCA makes no finding that the Transaction, in fact, involved financial crime, the circumstances of the Transaction gave rise to a number of features which, together with the PEP status of the individuals, indicated a higher level of risk. This required Barclays to adhere to a higher level of due skill, care and diligence but Barclays failed to do this,” it said.

Barclays applied a lower level of due diligence than its policies required for other business relationships of a lower risk profile. 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 individuals.

Barclays went to unacceptable lengths to accommodate the clients. The FCA said that Barclays did not obtain information 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,” it said.

Barclays agreed to keep details of the transaction strictly confidential, even within the firm, and agreed to indemnify the clients up to £37.7 million in the event that it failed to comply with these confidentiality restrictions.

The fine comprises disgorgement of £52.3 million, which is the amount of revenue that Barclays generated from the transaction, and a penalty of £19,769,400.

Mark Steward, director of enforcement at 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.”

He added: “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.”

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