Daily Management Review

Accused of Poor Checks on Wealthy Clients, FCA Fines Barclays £72m Over 'Elephant Deal'


11/26/2015




Accused of Poor Checks on Wealthy Clients, FCA Fines  Barclays £72m Over 'Elephant Deal'
Holding a top bank responsible for running the risk of laundering money or financing terrorism by conducting the deal for politically sensitive people, a £72m penalty was slapped on Barclays for an “elephant deal” that it had executed three years ago.
 
Deals that are worth £20m or more are classified internally as “elephant” deal. Now since this deal was worth £1.9bn it aroused the interest of the Financial Conduct Authority. While being the largest deal that the bank had ever conducted, it was also a top secret affair and even the bank insiders were not informed about the names of the clients.
 
“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,” said Mark Steward, the FCA’s new director of enforcement and market oversight.
 
With its UK penalty bill from the FCA and its predecessor, the Financial Services Authority, now at nearly £500m, this is the seventh penalty imposed on Barclays since 2009.
 
The City regulator had issued a warning to banks about their dealings with so-called politically exposed persons (PEPs) almost at the same time as the transaction was taking place – in a series of stages between 2011 and 2012.

A fine of £8.75m was slapped on Coutts for breaches of money-laundering rules in handling the affairs of customers vulnerable to corruption because of their political links in 2012.
 
The FCA held Barclays guilty of breaching of rules put in place intended to ensure checks were made about client suitability even as it refrained from concluding that the bank had actually facilitated money laundering or terrorist financing.

The FCA described the clients of the deal as “a number of ultra-high-net-worth politically exposed persons” while saying that the bank had gone to “significant lengths to accommodate the clients”.
 
The clients were offered up to £37.7m in compensation in the event it failed to comply with confidentiality restrictions as, in the words of one manager, the deal was the “the deal of the century”.
 
The FCA said that apart from the lure of a profit of £52.3m, the bank was driven by the prospects of further business. In a step rarely taken by the regulator, the FCA has asked the bank to disgorge this profit.
 
While a number of companies were used to facilitate the transaction, it was complex in nature and involved investments in structured bonds. The aim of the deal was to provide the clients with a specified rate of income with full capital guarantee over a number of decades.

“The FCA made no finding that Barclays facilitated any financial crime in relation to the transaction or the clients on whose behalf it was executed. Barclays has co-operated fully with the FCA throughout and continues to apply significant resources and training to ensure compliance with all legal and regulatory requirements,” Barclays said.

(Source: www.theguardian & www.bbc.com)  
 






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