Goldman Sachs has been handed a multi-million pound fine from the Financial Services Authority (FSA) for failing to tell the UK regulator that it was under investigation for fraud in America.

The City watchdog announced the £17.5m fine – one of the biggest it has imposed – on Thursday following a five-month inquiry that was originally triggered by fraud charges in the US.
The FSA said ‘weaknesses’ in Goldman’s reporting controls had led to a failure to provide the regulator with ‘appropriate information’.
It said Goldman failed to inform them that one of its employees, Fabrice Tourre, was under investigation for fraud by the Securities & Exchange Commission (SEC) in America. Goldman is regulated in the UK as well as the US. In addition, Mr Tourre moved from New York to work in London while the probe was ongoing.

In April, the SEC charged Goldman with misleading investors in a complex mortgage-backed security known as Abacus.

On Thursday, Margaret Cole, managing director of FSA enforcement and financial crime, said: ‘We have repeatedly stressed the importance of firms self-reporting regulatory issues to the FSA in a timely way. GSI did not set out to hide anything, but its defective systems and controls meant that the level and quality of its communications with the FSA fell far below what we expect of an authorised firm.

‘The fact that senior business people at GSI in London knew about Mr Tourre’s Wells Notice, but did not consider the obvious regulatory implications for GSI is very disappointing. Had GSI complied with its UK obligations, the outcome for it would have been very different.

‘This penalty should send a message – particularly to the senior management of large institutions – of the need to have their firm’s UK reporting obligations at the forefront of their minds.’

The FSA investigation found that Goldman did not deliberately withhold any information from the FSA. It said that Goldman ‘co-operated fully and agreed to settle at an early stage’.

In doing so, the bank qualified for a 30pc discount. Without the discount the fine would have been £25m.

The SEC claimed that Goldman had failed to disclose that a hedge fund that was betting against the Abacus security had selected some of the mortgage loans included in the portfolio, costing investors as much as $1bn.

The allegations caused outrage across American when they were first made public in April. Later that month, seven of Goldman’s directors, including Lloyd Blankfein, chief executive, and Mr Tourre, faced a highly charged public questioning on the allegations from the US Senate Committee.

Goldman agreed to settle the case and paid a fine of $550m (£355.5m) but did not either admit or deny any wrongdoing.

Goldman had hoped to draw a line under the case and rebuild its public image after being battered during the financial crisis.

The fine from the FSA is the latest in a string of large levies imposed by the City regulator.

The biggest was £33m levied against JP Morgan last year. The watchdog found that the bank had failed to separate client money from its own.

Last month, the London branch of French bank Societe Generale was fined £1.57m for failing to provide accurate transaction reports.

Last year, Barclays was fined £2.45m also for failing to keep proper trading records, while Credit Suisse and Commerzbank have also been penalised for similar breaches.

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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.