The largest fine in FCA history has been issued for Barclays. The bank has fallen under scrutiny in the UK and the US for its practices, which resulted in a £37,745,000 fine. The fine amount was reached as a part of a settlement, which could have been substantially more if no agreement was reached. Failing to look after their client’s best interest and compliance concerns puts the company under significant pressure to evaluate its banking practices.

Failing to protect custody assets 

Barclays Bank Plc has been fined for the amount of £37,745,000 by the Financial Conduct Authority. The fine could have easily exceeded of £53,921,619 if the company failed to agree to a settlement. In their decision to settle earlier, the company saw a 30 percent reduction in the initial amount. The DOJ has issued a separate fine for approximately £160 million. The company has been fined for failure to properly protect the assets of clients served. At stake is approximately £16.5 billion worth of assets. Clients are likely to incur costs and risk losing their assets due to the actions of Barclays.

Lessons learned from Lehman

This fine is one of the highest fines of its kind ever issued. The next largest find was issued in 2010 to JP Morgan Chase & Company bank. Neither the FCA nor the FSA have ever imposed a fine that high where significant weaknesses of this magnitude were identified. Upon review, it was discovered that there were significant gaps in controls between November 2007 and January 2012. Putting the spotlight on the company demonstrated how important it is for companies to learn from recent history where serious fines and warnings were issued. Previous failures cited like Lehman should have served as a cautionary tale for companies that fall short when managing client assets. It was also discovered that accounts had been classified improperly in citing the accounts as belonging to Barclays.

Looking after the consumer’s best interest

This fine underscores the importance of taking extra steps to properly safeguard the client’s assets. The key to keeping customers confident is having the proper safeguards in place to support compliance efforts. Accounts were opened under Barclays name instead of the actual account holder. There were also nearly 1,500 transactions created for clients without the proper documentation. There were also issues concerning disclosure practices. The company is reported to have not provided the proper written disclosures or failed to get the proper consent. Revenues reported by the entity didn’t align with commissions billed to nearly 3,000 clients. Barclays was also under tremendous heat in not observing best practices by making US dollar EURIBOR and LIBOR submissions. The company may have also been involved in attempting to influence the EURIBOR.

Why were clients at risk?

The lack of focus on the rules was deemed unacceptable by authorities. The FCA Rules are set in place to protect the client in the event that a firm becomes at risk of becoming insolvent. Customers could have suffered significant losses if the entity ever became insolvent. Barclays failed to apply the various rules when opening several custodial accounts. Approximately 100 accounts panning over 21 countries were affected by their practices. Customers were also exposed to other vulnerabilities where Barclays failed to set up the proper legal arrangements when establishing the accounts. Reports state that the Barclays failed to discover the flawed accounts, which permitted some accounts to be in breach for a minimum of three years.

Promoting Integrity in banking

Banks must make an effort to meet the necessary benchmarks in reporting and compliance. Banks that fall short in this area and attempt instead to manipulate the rates for gain are compromising the integrity of the banking system. False reports submitted under the direction of senior management to protect their image are in direct conflict with what the outlined banking responsibilities dictate.

Cooperation and change going forward

Barclays has acknowledged that they fell short in multiple areas. While under examination by the SEC, the company was cooperative. As a result, the bank has strengthened its oversight. The company has also implemented measures to provide better solutions to their clients. Barclays reportedly received more revenue in the amount of £3.1 million for its actions. Customers were also affected by overcharges totaling £472,000. The company has reimbursed the clients approximately £3.8 million in overcharges for customers affected.

Increased scrutiny of firms is expected to continue in order to increase compliance across the board. The FCA’s assessment showed that the firm’s weaknesses lie in not having sufficient management, controls and systems. The FCA’s enforcement practices fulfill a need to provide much better protection for client’s assets in order to improve the UK financial system and build consumer trust.

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Tim Capper

Bringing you financial news and information in plain english for Maple Leaf Financial. My aim is to help readers understand these often complex financial instruments.