Barclays Fined £38m for Failing to Safeguard Client Assets

25 09 2014

In the highest fine ever imposed for client assets breaches, pursuant to the Financial Services and Markets Act 2000, the Financial Conduct Authority (FCA) has fined Barclays £37,745,000 because of the bank’s failure to properly protect clients’ custody assets worth £16.5 billion. The majority of these belonged to the bank’s Affiliates (£13.5 billion) and its Affiliates’ clients (£2.7 billion) – read Final Notice here. Had Barclays come to be plagued by the onset of insolvency, its clients ran the risk of incurring extra costs, lengthy delays or losing their assets. The bank’s breaches arose from significant weaknesses in its systems and controls and a historical focus on business lines and products traded, rather than giving adequate consideration to which legal entity was conducting the relevant business.

For David Lawton, FCA director of markets, “Barclays lack of focus on the rules was unacceptable” because the FCA’s “on-going scrutiny of firms’ compliance reflects the importance of the regime, which protects custody assets worth £10 trillion held in the UK.”

Tracey McDermott, the FCA’s director of enforcement and financial crime, considered that:

Barclays … exposed its clients to unnecessary risk.

And she remarked further that:

All firms should be clear after Lehman that there is no excuse for failing to safeguard client assets.

Barclays failed to properly apply the FCA’s rules – as regards protecting client assets in the event a firm becomes insolvent – when opening 95 custody accounts in 21 countries. As a result, Barclays’ records did not correctly reflect which company within its Investment Banking Division was responsible for the assets in the accounts. Moreover, the bank failed to set up suitable legal arrangements with these companies and its shortcomings were aggravated by problems in account naming or incorrect data that pointed towards assets belonging to Barclays rather than its clients.

The bank’s behaviour therefore breached the FCA’s Client Asset Rules and requirements that firms should have adequate management, systems and controls (Principle 3) and properly safeguard clients’ assets (Principle 10). However, since Barclays settled early under the FCA’s executive settlement procedures and qualified for a stage 1 (or 30%) discount in the absence of which the FCA would have imposed a penalty of £53,921,619.

No doubt this recent penalty adds to an already burgeoning conduct costs spectre haunting banking and financial services. The swelling nature of conduct costs (totalling some £157.43 billion in 2009 – 2013; see graphic results here) and what they behold for the future of financial markets have been analysed by Professor McCormick et al in the Conduct Costs Project (which has only recently formed the Conduct Costs Project Research Foundation; see Introduction and FAQs and Partner Institution Guide and new independent website).

Other posts on this blog involving conduct costs, Barclays and misconduct as regards LIBOR and related litigation can be recalled as:



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