Barclays fined $109 million for improper security procedures
The Financial Conduct Authority announced that Barclays, the universal bank, has been fined 72 million pounds, or $109 million, for its elaborate plan to hide transactions worth 1.88 billion pounds, or $2.83 billion. The notice appeared on the website of the U.K. regulator on Nov. 26. Based in the United Kingdom, Barclays is a global provider of banking and financial services, with headquarters in London and over 300 years of history within the city. It was the first bank to put out a cash machine, now known as an ATM. The machine was cleverly referred to as Barclaycash.
The FCA is funded solely by the firms that it regulates, though it also reports to the Treasury and the Parliament. It ensures that the 70,000 businesses it regulates run efficiently and that the businesses’ activities do not harm the industry or the consumers.
After careful planning, the aforementioned transactions took place in 2011 and 2012. The transactions involved clients with an extremely high net worth, many of which were classified as “politically exposed persons,” or PEPs.
“A politically exposed person (PEP) is an individual who is or has been entrusted with a prominent function,” the Financial Action Task Force, a government body responsible for setting standards and regulations for combatting money laundering and other threats to the financial system, explains. “Many PEPs hold positions that can be abused for the purpose of laundering illicit funds or other predicate offences such as corruption and bribery.”
When it comes to transactions involving PCPs, a bank would be required to go through thorough safety procedures due to higher risk of the client’s involvement in money laundering. Instead, Barclays chose to go for less thorough safety procedures, allowing Barclays to collect 52.3 million pounds in revenue, or $78.65 million.
“Barclays went to unacceptable lengths to accommodate the clients,” the FCA states. “Specifically, Barclays did not obtain information that it was required to obtain from the clients to comply with financial crime requirements.”
The FCA believes that Barclays decided to lower the level of safety procedures imposed on those clients simply because it did not want to cause inconvenience. Barclays was also bound to extreme confidentiality, with many of the workers unaware of the transaction. The bank also agreed to pay out up to 37.7 million pounds, or $56.7 million, to each client if the confidentiality rules were broken.
Indeed, the levels of security were extreme; not many people knew about the transaction and records of it were only kept as hard copies, with only few people knowing of their existence or where the files were located.
The fine is composed of two parts. The first part consists of the 52.3 million, or $78.65 million, that Barclays made in revenue from the transaction and is now forced to return to FCA. The second part of the fine is the actual penalty, which comes up to close to 19.77 million pounds, or $29.73 million.
Despite the fine, the FCA did not find any evidence that Barclays conducted a financial crime such as money laundering. The reason behind the fine was the sole fact that the transaction was kept secret and proper security procedures were not put in place, which allowed for a crime to be committed.
“The FCA makes no findings that financial crime was involved or facilitated by Barclays, or regarding the provenance of the funds invested as part of the Transaction,” the FCA’s release affirms.
But this does not cancel out the possibility that a crime was committed. The FCA makes it clear that one of Barclays’ main faults was the fact that it did not discover a clear reason behind the transaction. The source of funds used for the transaction and the client’s source of wealth were also left unconfirmed at the time of transaction.
On the same day that the fine was announced by the FCA, Barclays made a release announcing its settlement with the FCA.
“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 aforementioned release states.
The excuse was as original as it was convincing—a similar statement was used in releases concerning other charges against the bank. Barclays failed to explain how it will ensure that a similar transactions will not take place in the future, or how it will ensure that the bank will comply with regulations.
Barclays’ compliance with regulations is a long-standing issue. Just a week prior to the FCA announcement, Barclays announced that it has reached a settlement with the New York State Department of Financial services over the department’s investigation of Barclays’ “electronic trading of foreign exchange and foreign exchange electronic trading systems” between 2009 and 2014. In May, Barclays was fined another $2.32 billion for “rigging” foreign- exchange markets.
It is likely that the decision to settle in an early stage of the investigation was strategic—it allowed Barclays to receive a 30 percent discount on the penalty. Otherwise, Barclays would have been forced to pay a penalty of 28.24 million pounds, or $42.46 million, with a total fine reaching 80.54 million pounds, or $121.1 million.
In the release, Mark Steward, FCA’s director of enforcement and market oversight, threatened that the FCA will continue to hold firms responsible for similar negligence.
“Firms will be held to account if they fail to minimize financial crime risks appropriately and for this reason the FCA has required Barclays to disgorge its revenue from the Transaction,” Steward claimed.