Barclays hit by $109M fine for mishandling super-rich


Barclays was hit with a £72 million ($108.5 million) fine on Thursday, with a U.K. regulator claiming the bank had worked with "ultra-high-net-worth clients" in a manner that could have helped financial crime take place.

The Financial Conduct Authority (FCA) said the U.K. bank, which has a market capitalization of £37.6 billion ($56.7 billion) went to "unacceptable lengths to accommodate the clients." This is in relation to a £1.88 billion transaction that Barclays conducted in 2011 and 2012 on behalf of these rich clients, which was the biggest of its kind that the bank had executed for individuals.

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The fine is the largest ever imposed for financial crime failings by the regulatory body, or its predecessor, the Financial Services Authority (FSA).

"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," Mark Steward, director of enforcement and market oversight at the FCA, said in a news release on Thursday.

"Firms will be held to account if they fail to minimize financial crime risks appropriately and for this reason the FCA has required Barclays to disgorge its revenue from the transaction."

In a news release on Thursday, Barclays said that it had cooperated with the FCA throughout the investigation and "continues to apply significant resources and training to ensure compliance with all legal and regulatory requirements."

'Unacceptable' accommodation of clients

There is no evidence that financial crime took place. However, the FCA said that the U.K. bank went to "unacceptable lengths" to accommodate the clients who were "politically exposed persons" and should have been subject to increased monitoring and due diligence.

Instead, Barclays applied a lower level of due diligence than its policies required for business relationships with a lower risk profile, the FCA said.

Barclays did not follow its standard procedures, preferring instead to take on the clients as quickly as possible and thereby generate £52.3 million in revenue, it said.

"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," the FCA said.

In addition, few people knew of the existence and location of the relevant due diligence records, which were kept in hard copy and not on Barclays' systems, the FCA said. This meant the bank could not respond promptly to the body's request for information.

Barclays settled at an early stage in the FCA's investigation, however, and therefore qualified for a 30 percent discount on the fine, which would otherwise have been £80.5 million.

Action against executives?

Campaigning group, Global Witness, said on Thursday that action should also be taken against the senior bank employees involved.

"Today's move is very welcome, but cash fines are not enough of a deterrent. To stop this kind of flagrant rule breaking happening again, the FCA should take action against senior executives. The government must not water down new rules to do that if it is serious about tackling financial crime," Stuart McWilliam, senior campaigner at Global Witness, said in a news release.

This is the second largest fine the bank has received from the U.K. in recent months. In May, it received a £284 million penalty, which was the biggest fine yet imposed by the FCA or the FSA.

This was for failing to control business practices in its foreign exchange business in London, in relation to the Libor currency market and interest rate rigging scandal that spun across several banks.

Barclays was also hit by fines in May from U.S. authorities, including the Federal Reserve and the Justice Department.

Meanwhile on Wednesday, a class action law suit was filed in New York against 10 major banks, including Barclays, for allegedly colluding to prevent the trading of interest rate swaps on electronic exchanges. This allegedly prevented competition emerging from non-bank players.

Earlier in the month, four employees of Barclays (and six from Deutsche Bank) were charged with conspiracy to defraud in relation to interest rate rigging, by the U.K.'s Serious Fraud Office.

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— By CNBC's Katy Barnato. Follow her on Twitter @KatyBarnato.