The fine is for a £1.88bn transaction that Barclays arranged and executed in 2011 and 2012 for a number of ultra-high-net-worth clients. The clients involved were politically exposed persons (PEPs) and should have been subject to enhanced levels of due diligence and monitoring by Barclays.
A politically exposed person is an individual whose prominent position in public life may make them, their family or associates vulnerable to corruption.
The FCA said the transaction itself was not a financial crime, but the ‘higher level of risk’ together with the PEP status of the individuals, indicated a higher level of risk.
The regulator said Barclays failed to exert the skill, care and diligence 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 £52.3m 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. The regulator said Barclays went to unacceptable lengths to accommodate the clients.
“Specifically, Barclays did not obtain information that 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. Barclays agreed to keep details of the transaction strictly confidential, even within the firm, and agreed to indemnify the clients up to £37.7m in the event that it failed to comply with these confidentiality restrictions,” said the regulator.
Records of the deal were not kept in hard copy or on Barclays’ systems, which had a detrimental impact on ‘how the business relationship was monitored’ by the bank and also meant that Barclays could not respond promptly to the FCA’s request for this information.
The fine includes £52.3m, which is the amount of revenue that Barclays generated from the transaction, and a penalty of £19,769,400. This is the largest fine that has been imposed by the FCA and the FSA for financial crime failings.
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.”
Barclays agreed to settle at an early stage of the FCA’s investigation and therefore qualified for a 30% (stage 1) discount. This discount does not apply to the £52.3m in revenue that Barclays generated from the transaction which has been disgorged as part of the overall penalty. Were it not for the 30% discount the financial penalty would have been £80,542,000.
The FCA wanted to make it clear it made no criticism of the clients and this was no financial crime.