‘Elephant’ deals and cutting corners: Why FCA fined Barclays £72m

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Staff at Barclays lowered due diligence standards for a group of ultra high-net-worth individuals in a bid to avoid “irritating” the clients, the FCA’s final notice reveals.

This morning the regulator revealed it had fined the bank £72m for applying lower standards of scrutiny to a £1.88bn deal involving several “politically exposed persons”.

According to the FCA, Barclays senior management expressed concern at the speed at which due diligence could be completed, with one saying they wanted to “rush through” the “elephant deal”.

The FCA says: “Barclays went to significant lengths to accommodate the clients. It did this to win the clients’ business and for the significant revenue that it would generate from the transaction.

“In the early stages of arranging the deal, when it was suggested that the transaction might be for a larger sum, one senior manager recognised that it could be the ‘deal of the century’.

“It was also recognised within Barclays that the transaction could open the door to similar significant business opportunities for Barclays.”

However, the regulator found that the bank’s desire to secure the clients meant it agreed to keep details of the transaction secret, even within Barclays, with a £37.7m indemnity agreed if confidentiality was breached.

As a result, the FCA says “a very limited number of people within Barclays and its advisers” were aware of the clients’ identities, and details were not kept on the banks internal computer systems.

This meant automated checks against sanctions and court order lists that would have typically been carried out never took place.

The bank was also reluctant to obtain more information from clients out of fear of “irritating” them with multiple requests, the FCA says.

This meant when the £1.88bn transaction occurred, Barclays was unable to satisfy itself of the identity of the accounts that funds had come from, the length of time funds had been in those accounts, or the provenance of the funds used.

As a result, Barclays applied less scrutiny than would be required for standard business relationships.

The FCA also cites one instance in which clients requested Barclays make a payment in the order of tens of millions to a third party.

The FCA says: “When Barclays questions the rationale for that payment, the request for the payment to be made to the third party was withdrawn.

“Whilst there could have been legitimate reasons for the proposed payment and its subsequent retraction, Barclays should have considered whether the reluctance to provide it with an explanation indicated a higher risk of financial crime, and whether it needed to apply a higher level of scrutiny in respect of the business relationship.”