Great Britain's top financial regulator hit Barclays Bank with a nearly $44 million fine Friday over lax controls that enabled a former bank trader to make improper trades in the gold market at a customer's expense.
The Financial Conduct Authority said former trader Daniel James Plunkett "exploited the weaknesses in Barclays' systems and controls" to influence the twice-daily process in which traders from four banks set or fix the official market price for gold.
Plunkett's transactions in 2012 boosted his own trading book by $1.75 million, the FCA said. The outcome also meant London-based Barclays was not required to make a $3.9 million payment to a customer, though the bank later compensated the client in full.
In addition to the bank penalty, the FCA fined Plunkett roughly $161,000 and banned him from work involving any regulated financial activity.
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The enforcement actions mark the latest public development in a worldwide crackdown on suspected manipulation of financial benchmarks used to set interest rates or prices that affect millions of consumers. Along with focusing on the gold market, investigators are probing suspected rigging of foreign-exchange currency trading and Libor, the London Interbank Offered Rate used to set rates on trillions of dollars in mortgages, credit cards and many types of loans.
"We expect all firms to look hard at their reference rate and benchmark operations to ensure this type of behavior isn't being replicated," said Tracey McDermott, the FCA's director of enforcement and financial crime. "Firms should be in no doubt that the spotlight will remain on wholesale conduct and we will hold them to account if they fail to meet our standards."
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Barclays Group Chief Executive Antony Jenkins said the bank regretted the episode and has strengthened its systems and controls to prevent any recurrence.
According to the FCA, Plunkett was a director on the Barclays precious metals desk and was responsible for pricing products linked to the cost of precious metals and managing the bank's related financial risk.
During the 3 p.m. price-setting on June 28, 2012, Plunkett placed orders designed to increase the likelihood that the price of gold would be set below $1,558.96.
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The benchmark ultimately was set below that threshold, which meant Barclays didn't have to make a $3.9 million payment to a trading customer. The customer sought an explanation from the bank after learning about the updated gold price.
When Barclays relayed the customer's concerns to Plunkett, he failed to disclose that he had placed the orders. Plunkett also misled the bank and FCA investigators, the regulator said.
Barclays and Plunkett ultimately agreed to a settlement with the FCA, which agreed to impose lower financial penalties as a result.
—By Kevin McCoy, USA Today, with The Associated Press