Barclays fined £38 million for putting £16.5 billion of client assets at risk

Barclays Bank Plc (Barclays) has today been fined £37,745,000 by the Financial Conduct Authority (FCA) 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.

This is the highest fine ever imposed by the FCA or its predecessor the FSA for client assets breaches, reflecting ‘significant weaknesses’ in the systems and controls in Barclays’ Investment Banking Division between November 2007 and January 2012 and the number of affected accounts.

David Lawton, FCA director of markets, said:

'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, said:

'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.'

The FCA’s Rules are there to protect client assets if a firm becomes insolvent. Barclays failed to properly apply these rules when opening 95 custody accounts in 21 countries. 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.

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

This 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 FCA’s enforcement action reflects its objective to secure appropriate consumer protection and enhance the integrity of the UK financial system.

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.

Notes for editors

1. The Final Notice for Barclays Bank Plc[1].
2. The FCA Principles[2] and FCA Client Asset Rules[3].
3. The FCA and FSA have previously imposed 16 fines for misconduct relating to client assets or client money. Barclays Capital Securities Limited, a subsidiary of Barclays was fined fined £1.1 million[4] in 2011 for similar misconduct in relation to client money. Fines were imposed on the following firms for similar failings: Xcap Securities plc[5], Aberdeen Asset Management and Aberdeen Fund Management[6], SEI Investments (Europe Limited)[7], Blackrock Investment Management (UK)Limited[8], Christchurch Investment Management Limited,[9] McInroy & Wood Limited[10], Towry Investment Management Limited[11], ActivTrades Plc[12], Rowan Dartington & Co Limited[13], Close Investments Limited[14], J P Morgan Securities Limited[15], Direct Sharedeal Limited[16], and, Integrated Financial Arrangement Limited[17], W Deb MVL plc[18] and  Kyte Group Limited[19].
4. These findings relate to Barclays’ role as a custodian of client assets within the Investment Banking Division.  Other clients (e.g. Personal and Corporate Banking (including Wealth) and Barclaycard) were not affected. Custodians hold assets on behalf of their clients for safekeeping. Most custodians also offer a variety of other services including account administration, transaction settlements, collection of dividends and interest payments, tax support and foreign exchange.
5. Following the insolvency of Lehman Brothers in 2008, the FCA’s predecessor, the FSA, wrote to compliance officers in March 2009 and chief executives in January 2010 highlighting concerns about the management of client money and client assets.
6. The FSA established a specialist Client Asset Unit in 2010. The Unit carries out specialist and intensive supervision of client assets, with the aim of ensuring that firms have robust systems in place to ensure the swift return of client assets in the event of firm insolvency.
7. On the 1 April 2013 the Financial Conduct Authority (FCA) became responsible for the conduct supervision of all regulated financial firms and the prudential supervision of those not supervised by the Prudential Regulation Authority (PRA).
8. 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.
9. Find out more information about the FCA[20].