The Financial Conduct Authority (FCA) has today fined Barclays Bank (Barclays) £72,069,400 for failing to minimise the risk that it may be used to facilitate financial crime.
The failings relate to a £1.88 billion pound transaction (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 therefore have been subject to enhanced levels of due diligence and monitoring by Barclays.
While the FCA makes no finding that the Transaction, in fact, involved financial crime, the circumstances of the Transaction gave rise to a number of features which, together with the PEP status of the individuals, indicated a higher level of risk. This required Barclays to adhere to a higher level of due skill, care and diligence but Barclays failed to do this. In fact, Barclays applied a lower level of due diligence than 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 £52.3 million 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.
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 £37.7 million in the event that it failed to comply with these confidentiality restrictions. Few people knew of the existence and location of the firm's due diligence records which were kept in hard copy and not on Barclays' systems. This had a detrimental impact on how the Business Relationship was monitored by Barclays and also meant that Barclays could not respond promptly to the FCA’s request for this information.
The fine comprises disgorgement of £52.3 million, 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 its predecessor 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."
The FCA specifically found that Barclays:
- senior management at the relevant time failed to oversee adequately Barclays’ handling of the financial crime risks associated with the Business Relationship and that it was unclear which senior managers were in charge of doing so
- failed to respond appropriately to a number of features of the Business Relationship that indicated a higher risk of financial crime
- followed a less robust process than it would have done for other Business Relationships that had a lower risk profile
- failed to establish the purpose and nature of Transaction and did not sufficiently corroborate the clients’ stated source of wealth and source of funds for the Transaction
- failed to monitor sufficiently on an ongoing basis the financial crime risks associated with the Business Relationship
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 £52.3 million 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 makes no finding that financial crime was involved or facilitated by Barclays, or regarding the provenance of the funds invested as part of the Transaction. Nor does the Authority make any finding that the revenue that Barclays generated from the Transaction was derived from any financial crime. The FCA makes no criticisms of the clients.
Notes to editors
- The Final Notice for Barclays Bank.
- On 22 June 2011, the FSA published its findings from a thematic review, which focused on how banks manage money laundering risk in higher risk situations. This report provided specific examples of the type of information that banks should be obtaining on the source of wealth and source of funds of PEPs in order to comply with their obligations under the MLRs. The FSA published a Policy Statement PS11/15 Financial crime: a guide for firms on 9 December 2011. This contains guidance on steps firms can take to reduce their financial crime risk, including in their dealings with high risk and PEP customers. The Financial Crime Guide was last updated on 27 April 2015.
- In 2007 the Joint Money Laundering Steering Group (JMLSG) Guidance was issued to accompany the MLRs. This 2007 Guidance reiterated firms’ obligations to have effective procedures in place to detect and prevent money laundering and provided detail on the enhanced due diligence firms should perform when on-boarding PEPs. The JMLSG Guidance is updated from time to time, and it was last updated in November 2014.
- Politically Exposed Persons (PEPs) are individuals whose prominent position in public life may make them vulnerable to corruption. The definition extends to immediate family members and known close associates. The full definition of a PEP is set out in section 14(4) of the Money Laundering Regulations 2007.
- The FCA has an overarching strategic objective of ensuring the relevant markets function well. To support this it has three operational objectives: to secure an appropriate degree of protection for consumers; to protect and enhance the integrity of the UK financial system; and to promote effective competition in the interests of consumers.
- Find out more information about the FCA.