Barclays hit with record financial crime fine
30 November 2015 London
Image: Shutterstock
The Financial Conduct Authority (FCA) has fined Barclays more than £72 million for poor handling of a transaction that posed a high risk of financial crime.
The fine relates to a particular transaction of £188 billion, which Barclays arranged and executed on behalf of several ultra-high-net worth individuals, who were also ‘politically exposed persons’ (PEPs), and therefore should have been subject to enhanced levels of due diligence and additional monitoring.
Where Barclays should have applied a higher level of care and due diligence, the FCA found that the bank actually applied a lower level of due diligence than is required for other lower-risk transactions.
According to the FCA, by failing to follow standard procedures, and by processing the transaction as quickly as possible, Barclays generated about £52.3 million in revenue.
The £72 million fine includes this revenue, plus a penalty of £19.8 million – the largest ever fine imposed by the FCA or it’s predecessor, the Financial Standards Authority, for financial crime failings.
Barclays settled at an early stage of the investigation, and therefore qualified for a 30 percent reduction, although this does not apply to the £52.3 million created in revenue. Without this discount, the fine would have totalled £80.5 million.
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."
Specifically, the FCA found that senior management at the bank failed to oversee the handling of financial crime risks associated with this business relationship. The FCA also said it was unclear which managers were responsible for overseeing the relationship, and that these monitoring failures were on-going throughout transaction procedures.
Barclays did not establish the purpose or nature of the transaction, or properly verify the clients’ source of the funds used. It did not obtain the appropriate information for compliance with financial crime compliance – a move that the FCA alleges was to avoid inconveniencing the clients.
The bank also agreed to keep details of the transaction confidential, and due diligence records were kept in hard copy only, and few people knew of their existence or location.
This meant the business relationship could not be properly monitored, and that Barclays could not respond to the FCA’s information request quickly.
The FCA stressed that there was no financial crime related to the transaction, merely that the risk of financial crime, because of the circumstances and the PEPs involved, was not addressed.
In a statement, Barclays said: “The FCA made no finding that Barclays facilitated any financial crime in relation to the transaction or the clients on whose behalf it was executed.”
“Barclays has cooperated fully with the FCA throughout and continues to apply significant resources and training to ensure compliance with all legal and regulatory requirements.”
The fine relates to a particular transaction of £188 billion, which Barclays arranged and executed on behalf of several ultra-high-net worth individuals, who were also ‘politically exposed persons’ (PEPs), and therefore should have been subject to enhanced levels of due diligence and additional monitoring.
Where Barclays should have applied a higher level of care and due diligence, the FCA found that the bank actually applied a lower level of due diligence than is required for other lower-risk transactions.
According to the FCA, by failing to follow standard procedures, and by processing the transaction as quickly as possible, Barclays generated about £52.3 million in revenue.
The £72 million fine includes this revenue, plus a penalty of £19.8 million – the largest ever fine imposed by the FCA or it’s predecessor, the Financial Standards Authority, for financial crime failings.
Barclays settled at an early stage of the investigation, and therefore qualified for a 30 percent reduction, although this does not apply to the £52.3 million created in revenue. Without this discount, the fine would have totalled £80.5 million.
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."
Specifically, the FCA found that senior management at the bank failed to oversee the handling of financial crime risks associated with this business relationship. The FCA also said it was unclear which managers were responsible for overseeing the relationship, and that these monitoring failures were on-going throughout transaction procedures.
Barclays did not establish the purpose or nature of the transaction, or properly verify the clients’ source of the funds used. It did not obtain the appropriate information for compliance with financial crime compliance – a move that the FCA alleges was to avoid inconveniencing the clients.
The bank also agreed to keep details of the transaction confidential, and due diligence records were kept in hard copy only, and few people knew of their existence or location.
This meant the business relationship could not be properly monitored, and that Barclays could not respond to the FCA’s information request quickly.
The FCA stressed that there was no financial crime related to the transaction, merely that the risk of financial crime, because of the circumstances and the PEPs involved, was not addressed.
In a statement, Barclays said: “The FCA made no finding that Barclays facilitated any financial crime in relation to the transaction or the clients on whose behalf it was executed.”
“Barclays has cooperated fully with the FCA throughout and continues to apply significant resources and training to ensure compliance with all legal and regulatory requirements.”
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