Barclays Bank plc, and a former trader at the firm, have been fined by British regulators for failing to properly manage conflicts that resulted in it putting the firm’s interests ahead of customers.
The Financial Conduct Authority (FCA) fined the bank £26 million ($47.8 million), and the trader was fined £95,600 ($175,600) and banned from the industry. They both agreed to settle the allegations and qualified for discounts on the monetary penalties as a result.
According to the FCA, Barclays failed to adequately manage conflicts of interest, and it had systems and controls failings, in relation to the daily setting of gold prices. These weaknesses existed since the bank began participating in the daily “gold fixing” in 2004 until 2013, it says. Due to these weaknesses, the regulator says, the firm was able to profit at the expense of its clients.
Specifically, it reports that on June 28, 2012, former Barclays trader and a director on its precious metals desk, Daniel James Plunkett, exploited the weaknesses in Barclays’ systems and controls in an effort to influence that day’s gold fixing by placing orders designed to affect the daily fixing. As a result, it says that the price was set below a threshold which meant that Barclays did not have to pay off on an options contract with a customer that would have resulted in a US$3.9 million payment (although it later compensated the customer in full), and he boosted his own trading book by US$1.75 million (excluding hedging).
“A firm’s lack of controls and a trader’s disregard for a customer’s interests have allowed the financial services industry’s reputation to be sullied again,” said Tracey McDermott, the FCA’s director of enforcement and financial crime. “Plunkett has paid a heavy price for putting his own interests above the integrity of the market and Barclays’ customer. Traders who might be tempted to exploit their clients for a quick buck should be in no doubt – such behaviour will cost you your reputation and your livelihood.”
McDermott notes that the specific incident in question came the day after the FCA sanctioned Barclays for its role in manipulating financial benchmarks LIBOR and EURIBOR. “The investigation and outcomes in that case meant that the firm, and Plunkett, were clearly on notice of the potential for conflicts of interests around benchmarks,” she said. “We expect all firms to look hard at their reference rate and benchmark operations to ensure this type of behaviour isn’t being replicated. 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.”
The FCA also says that it is engaging with UK benchmark administrators, including The London Gold Market Fixing Limited, regarding their plans to assess their compliance with principles for the operation of benchmarks.