Barclays fined $361 million in US for ‘figurative’ blunder

Sept 30 (Reuters) – British lender Barclays ( BARC.L ) agreed on Thursday to a $361 million fine with U.S. regulators over “staggering” failures to sell $17.7 billion worth of structured products. CEO CS Venkatakrishna’s first year in charge.

After the London market closed on Friday, the bank said its own investigation into the wrongdoing, led by foreign lawyers, had also concluded, and that it would consider individual liability and disciplinary action or post pay packages based on the findings.

Barclays shares fell 0.2% on the day.

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The relevant behavior dates back to March of this year, when Barclays disclosed that it had accidentally oversold complex structured and exchange-traded notes, exceeding the $20.8 billion limit on such sales it agreed with the Securities and Exchange Commission by about 75%.

The SEC found that the bank had no internal controls in place to monitor such transactions in real time.

“While we acknowledge Barclays’ efforts to identify, disclose and correct this conduct, the oversight deficiencies and the scale of the conduct at issue here were simply staggering,” said Gurbir Grewal, director of the SEC’s Division of Enforcement, in a statement.

Barclays will pay the penalty without admitting or denying the SEC’s findings.

Barclays said its investigation found that the over-issuance was primarily due to the failure to identify and communicate the consequences of a change in its issuer status to senior executives and a decentralized structure for issuing securities.

The error was not due to “a general lack of attention to supervision by Barclays”, the bank’s investigation concluded.

Buyers of the notes, which are considered “unregistered securities”, were entitled to demand that Barclays buy back the products at the original price plus interest. The bank took on £1.3bn of debt in the second quarter to cover the cost of buying back securities, reducing profits. read more

On Thursday, the SEC said Barclays agreed to pay a $200 million civil penalty for regulatory violations. In addition, it agreed to pay more than $161 million in interest, even though the regulator said the additional payment was satisfied with the buyback offer.

While the SEC settlement helped put an end to the embarrassing incident for Venkatakrishnan, known as ‘Venkat’ at the bank, he still faces personal litigation over the incident. read more

Barclays must still disclose the final costs of its so-called liquidation bid to buy back the securities it mis-sold. The bank said on Friday that the full financial implications would be “materially consistent” with those disclosed in its half-year financial results, with further details in the third-quarter results on October 26.

Barclays said this month that investors filed claims for $7 billion of the $17.7 billion in securities it oversold. read more


Under a previous enforcement settlement Barclays agreed to with the SEC in 2017, the bank was stripped of its “popular experienced issuer” status, which allowed it to sell notes in the U.S. with flexible filing requirements.

As a result, Barclays has had to calculate the total number of securities it expects to offer and sell and to pay registration fees for those offers in advance. In August 2019, the bank and the SEC agreed that Barclays could offer or sell approximately $20.8 billion in securities over a three-year period.

Given that requirement, employees knew they had to closely monitor actual bids and sales of securities against the amount of bids and sales recorded in real time, but the bank failed to establish a mechanism to do so, the SEC said.

Around March 9, the employees realized they had oversold the agreed amount of securities and alerted regulators a few days later, the SEC said.

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Reporting by John McCrank in New York, Kanishka Singh in Washington and Iain Withers in London; Editing by Deepa Babington, Jason Neely, and Nick Zieminski

Our standards: Thomson Reuters Trust Principles.

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