Barclays Capital fined by FSA over client money
The Financial Services Authority (FSA) has fined Barclays Capital £1.12 million for failing to protect and segregate on an intra-day basis client money held in sterling money market deposits.
The penalty follows a record £7.7 million fine imposed on the bank last week for mis-selling two investment funds.
For over eight years, between 1 December 2001 and 29 December 2009, Barclays Capital - the investment banking arm of Barclays - failed to segregate client money maturing from its sterling money market deposits on an intra-day basis.
Omstead the client monies were segregated overnight but matured into a proprietary bank account and were mixed on a daily basis with Barclays Capital's own funds, typically for between five and seven hours within each trading day.
Under the FSA's client money rules, firms are required to keep client money separate from the firm's money in segregated accounts with trust status. This helps to safeguard and ring-fence the client money in the event of the firm's insolvency.
The average daily amount of client money which was not segregated increased from £6 million in 2002 to £387 million in 2009. The highest amount held in the account and at risk at any one time was £752 million.
Had the firm become insolvent within the five to seven hours each day in which the funds were unsegregated, this client money would have been at risk of loss.
Margaret Cole, managing director of enforcement and financial crime, said: "Barclays Capital committed a serious breach of FSA client money rules by failing to segregate millions of pounds of its clients' money for over eight years. This posed a significant risk and the penalty reflects the amount of client money involved in this breach.
"The FSA has repeatedly emphasised the importance of ensuring that client money is adequately protected and in the past year has taken enforcement action against firms of all sizes for breaches of its client money rules.
"Adhering to these rules not only ensures greater protection of clients but of financial stability as a whole. The FSA's specialist client assets unit will continue to intensify its focus in this area."
No clients of Barclays Capital suffered any losses as a consequence of the segregation error. Barclays Capital did not profit from, or avoid losses as a result of the breach, nor was there any incorrect financial reporting by Barclays Capital in the period December 2001 to December 2009.
The regulator said that when considering the penalty it took into account that the misconduct was not deliberate and that Barclays Capital rectified the situation on discovery.
It confirmed that Barclays co-operated in the course of its investigation and agreed to settle at an early stage. In doing so it qualified for a 30% discount. Without the settlement discount the fine would have been £1.61 million.
This article was written for Interactive Investor
The practice of a dishonest salesperson misrepresenting or misleading an investor about the characteristics of a product or service. For example, selling a person with no dependants a whole-of-life policy. There have been notable mis-selling scandals in the past, including endowment policies tied to mortgages, employees persuaded to leave final salary pensions in favour of money purchase pensions (which paid large commissions to salespeople) and payment protection insurance. There is no legal definition of mis-selling; rather the Financial Services Authority (FSA) issues clarifying guidelines and hopes companies comply with them.
Generally speaking, insolvency is to businesses what bankruptcy is to individuals. A company is insolvent if the value of its assets is less than the amount of its liabilities, or it is unable to pay its liabilities (loan payments) as they fall due. It’s an offence for an insolvent company to keep trading, so the main options available to an insolvent company are: voluntary liquidation, compulsory liquidation, administration or a company voluntary arrangement.
The Financial Services Authority is an independent non-governmental body, given a wide range of rule-making, investigatory and enforcement powers in order to meet its four statutory objectives: market confidence (maintaining confidence in the UK financial system), financial stability, consumer protection and the reduction of financial crime. The FSA receives no government funding and is funded entirely by the firms it regulates, but is accountable to the Treasury and, ultimately, parliament.