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Goldman Sachs fined £17.5m

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  • 09/09/2010
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Goldman Sachs fined £17.5m
The FSA has fined Goldman Sachs International (GSI) £17.5m for failing to have adequate systems in place to comply with regulatory reporting obligations.

The London-based division of Goldman Sachs failed to report to the FSA that the US financial watchdog the Securities and Exchange Commission’s (SEC) was investigating its complex investment product known as Abacus, which was hinged on the performance of sub-prime mortgages.

The Abacus product was structured by Goldman Sachs’ US division, Goldman Sachs & Co., and marketed in part by GSI from the UK.

In addition, part of the team that structured the product was the US division’s Fabrice Tourre, who later transferred to GSI in London and became an FSA approved person in November 2008.

However, despite the SEC investigation into Goldman Sachs & Co and GSI’s involvement in marketing the Abacus product, no one within Goldman Sachs in the UK or America considered the potential regulatory implications of the SEC investigation on GSI.

The FSA said GSI breached FSA Principles 2 and 3 by failing to ensure the relevant information on the investigation was shared between the American and London offices of Goldman Sachs.

In particular, GSI did not have effective procedures in place to ensure that its compliance department was made aware of the SEC investigation so that it could consider whether any notifications needed to be made to the FSA in compliance with GSI’s regulatory reporting obligations.

In a further breach, of FSA Principle 11, GSI did not tell the FSA that the SEC in America had accused the American division and Fabrice Tourre of serious violations of US securities law relating to Abacus, issuing a Wells Notice.

As a result, Tourre remained an approved person in the UK and was able to continue performing a controlled function for several months without further enquiry or challenge from the FSA.

GSI’s compliance department only became aware of the SEC investigation when, on 16 April 2010, the SEC announced that it had commenced enforcement proceedings in the US courts against Goldman Sachs & Co and Tourre.

Goldman Sachs and the SEC subsequently reached a $550 million settlement. Tourre denies the allegations against him.

Margaret Cole, managing director of 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.”

 

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