Barclays Fined £38 Million

The Financial Conduct Authority (FCA), the U.K.’s financial regulator, has fined Barclays Bank £38 million for failing to properly protect clients’ custody assets worth £16.5 billion.

As a result clients risked incurring extra costs, lengthy delays or losing their assets if Barclays had become insolvent, says the FCA. The regulator says the fine, the highest ever imposed for client assets breaches, reflects “significant weaknesses” in the systems and controls in Barclays’ Investment Banking Division between November 2007 and January 2012 and the number of affected accounts.

These failings were compounded by flaws in account naming or incorrect data that suggested assets belonged to Barclays instead of its clients, says the FCA.

Global Custodian understands that 80% of client assets were in Barclays’ affiliates. No clients, however, lost money and the assets were segregated at all times.

The fine relates to segregated money and intraday liquidity. It comes after the FCA looked to affect a hyperbolic default scenario after Barclays self reported to the authority, it is understood. These scenarios are based on the FCA’s expectations of the quality of record keeping and whether client assets could be separated at short notice.

The FCA says its rules exist to protect client assets if a firm becomes insolvent. Barclays failed to properly apply these rules when opening 95 custody accounts in 21 countries, it adds. “As a result, Barclays’ records did not correctly reflect which company within its Investment Banking Division was responsible for the assets in the accounts. Barclays also failed to set up appropriate legal arrangements with these companies”.

The “failings” 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).

The fine follows a hardened stance and stricter guidelines by the FCA when it was launched in 2013 to replace the Financial Services Authority. The authority has increased its emphasis on client asset protection and has issued strict guidelines for this purpose. In light of these new guidelines it looks to ensure that all client assets are segregated.

The fine relates to the period between 2007 and 2012. At the beginning of 2012, it was reported that Barclays had cleared $3.5 trillion in OTC derivatives contracts.

David Lawton, FCA director of markets, says: “Safeguarding client assets is key to maintaining market confidence if firms fail – Barclays’ lack of focus on the rules was unacceptable. Our 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, FCA director of enforcement and financial crime, says:
“Barclays failed to apply the lessons from our previous enforcement actions, numerous industry-wide warnings, and exposed its clients to unnecessary risk. All firms should be clear after Lehman that there is no excuse for failing to safeguard client assets.”

In a statement, Barclays says: “In this matter Barclays fell short of what is expected under the CASS Regulations. Barclays identified and self-reported to the FCA the issues giving rise to the FCA’s findings and we accept their conclusion. Barclays has subsequently enhanced its systems to resolve these issues and to ensure we have the requisite processes in place. No client has suffered any loss as a consequence of this weakness in our processes which existed prior to January 2012”

Barclays agreed to settle at an early stage, qualifying for a 30% discount. Without this, the FCA would have imposed a penalty of £53,921,619.