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Barclays fined for failings on US$2.9b 'elephant deal'

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Barclays was fined 72.1 million pounds (S$153 million) by UK regulators for failing to fully probe a group of "politically exposed" ultra-high-net-worth clients tied to a transaction of 1.9 billion pounds.

[LONDON] Barclays was fined 72.1 million pounds (S$153 million) by UK regulators for failing to fully probe a group of "politically exposed" ultra-high-net-worth clients tied to a transaction of 1.9 billion pounds.

The lender executed the so-called elephant deal in 2011 and 2012 for a number of clients, the Financial Conduct Authority said in a statement on Thursday. While the individuals should have been "subject to enhanced levels of due diligence and monitoring", Barclays didn't follow standard procedures, "preferring instead to take on the clients as quickly as possible" and generating 52.3 million pounds in revenue, the FCA said, without disclosing the customers' identity.

The latest fine tied to past misconduct comes as a blow to chairman John McFarlane who's made a "high performance ethic" one of his three priorities as Barclays seeks to restore investor confidence and bolster earnings growth. The London-based bank said on Oct 29 that it doesn't expect costs tied to past misconduct to drop anytime soon, when cutting a profitability target for 2016, partly because of higher redress charges.

"Barclays ignored its own process designed to safeguard against the risk of financial crime and overlooked obvious red flags to win new business and generate significant revenue," Mark Steward, the FCA's director of enforcement, said in the statement. "This is wholly unacceptable." The fine is the largest that has ever been imposed by the FCA and its predecessor for failings tied to financial crime, according to the statement.

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The transaction involved investments in notes backed by underlying warrants and third-party bonds, according to the statement. It was the largest of its kind that Barclays had executed for individuals, the FCA said.

The bank's officials didn't properly scrutinize the source of the clients' funds despite the higher risk of financial crime, the FCA said. Managers failed to understand the crime risks involved and were concerned about how long approval of the deal would take, with one executive saying he wished to "race this through." Barclays' approach was to request information only if it was absolutely necessary and did not want to "irritate" the clients, the FCA said. The managers working on the deal agreed to keep details of the transaction and the identities of the clients confidential, even from colleagues,according to the regulator. If the executives revealed who the wealthy individuals were, they'd have to pay them 37.7 million pounds in compensation, it said.

"The FCA made no finding that Barclays facilitated any financial crime in relation to the transaction or the clients on whose behalf it was executed," the lender said in a statement on Thursday. "Barclays has cooperated fully with the FCA throughout and continues to apply significant resources and training to ensure compliance with all legal and regulatory requirements." Barclays shares rose 1.1 per cent to 223.95 pence at 10:20 am in London. They have dropped about 8 per cent this year.

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