Barclays fined £26m for failings surrounding the London Gold Fixing and former Barclays trader banned and fined for inappropriate conduct
23 May 2014 12:16 PM
The Financial Conduct Authority (FCA) has fined
Barclays Bank Plc (Barclays) £26,033,500 for failing to adequately manage
conflicts of interest between itself and its customers as well as systems and
controls failings, in relation to the Gold Fixing. These failures continued
from 2004 to 2013.
On
28 June 2012, former Barclays trader Daniel James Plunkett exploited the
weaknesses in Barclays’ systems and controls to seek to influence that
day’s 3:00 p.m. Gold Fixing and thereby profited at a customer’s
expense.
As
a result of Plunkett’s actions, Barclays was not obligated to make a
US$3.9m payment to its customer, although it later compensated the customer in
full. Plunkett’s actions boosted his own trading book by US$1.75m
(excluding hedging).
The
FCA has fined Plunkett £95,600 and banned him from performing any
function in relation to any regulated activity.
Tracey McDermott, the FCA's director of enforcement
and financial crime, said:
"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. 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.
"Barclays' failure to identify and manage the
risks in its business was extremely disappointing. Plunkett's actions came
the day after the publication of our LIBOR and EURIBOR action against Barclays.
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.
"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."
Since joining the Gold Fixing on 7 June 2004, Barclays
has contributed to setting the price of gold in the Gold Fixing. The Gold
Fixing is an important price-setting mechanism which provides market users with
the opportunity to buy and sell gold at a single quoted price.
Plunkett
Plunkett was a Director on the Precious Metals Desk at
Barclays and was responsible for pricing products linked to the price of
precious metals and managing Barclays' risk exposure to those
products.
Plunkett was responsible for pricing and managing
Barclays' risk on a digital exotic options contract (the Digital) that
referenced the price of gold during the 3:00 p.m. Gold Fixing on 28 June 2012.
If the price fixed above US$1,558.96 (the Barrier) during the 3:00 p.m. Gold
Fixing on 28 June 2012, then Barclays would be required to make a payment to
its customer. But if the price fixed below the Barrier, Barclays would not have
to make that payment.
During the 3:00 p.m. Gold Fixing on 28 June 2012,
Plunkett placed certain orders with the intent of increasing the likelihood
that the price of gold would fix below the Barrier, which it eventually did. As
a result, Barclays was not obligated to make the US$3.9m payment to its
customer, and Plunkett’s book profited by US$1.75m (excluding hedging),
which was in addition to an initial profit that his book had received upon the
sale of the Digital.
Very shortly after the conclusion of the 3:00 p.m. Gold
Fixing on 28 June 2012, the customer became aware that the price had fixed just
below the Barrier and sought an explanation from Barclays as to what happened
in the Gold Fixing. When Barclays relayed the customer’s concerns to
Plunkett on 28 and 29 June 2012, he failed to disclose that he had placed
orders and traded during the Gold Fixing. Further, Plunkett misled both
Barclays and the FCA by providing an account of events that was
untruthful.
Plunkett’s misconduct is particularly serious
because he preferred his interests over those of a customer and his actions had
the potential to have an adverse effect on the Gold Fixing and the UK and
international financial markets.
Barclays
The
FCA has fined Barclays because it breached Principles 3 and 8 of the FCA's
Principles for Businesses, in relation to the Gold Fixing. Between 7 June
2004 and 21 March 2013, Barclays breached Principle 3 by failing to take
reasonable care to organise and control its affairs responsibly and
effectively, with adequate risk management systems. In particular, Barclays
failed to:
- create or implement adequate policies or procedures to
properly manage the way in which Barclays’ traders participated in the
Gold Fixing;
- provide adequate specific training to precious metals
desk staff in relation to their participation in the Gold Fixing;
and
- create systems and reports that allowed for adequate
monitoring of traders’ activity in connection with the Gold
Fixing.
Barclays also breached Principle 8 by failing to
adequately manage certain conflicts of interest between itself and its
customers. In particular, Barclays failed to adequately manage the inherent
conflict of interest that existed from Barclays participating in the Gold
Fixing and contributing to the price fixed during the Gold Fixing, while at the
same time also selling to customers options products that referenced, and were
dependent on, the price of gold fixed in the Gold Fixing.
These failings led to an increased risk of inappropriate
conduct by Barclays' traders participating in the Gold
Fixing.
The
FCA is engaging with UK benchmark administrators, including The London Gold
Market Fixing Limited, regarding their plans to assess compliance with IOSCO
principles.
Barclays and Plunkett agreed to settle at an early
stage, qualifying for a 30% discount to their respective fines. Without this,
Barclays’ fine would have been £37,190,800 and Plunkett's fine
would have been £136,600.
Notes for editors
- The Final Notice for Barclays Bank Plc.
- The Final Notice for Daniel James Plunkett.
- The
London Gold Fixing explained.
- Principle 3 of the FCA’s Principles for Businesses
– ‘Management and control’ - A firm must take reasonable care
to organise and control its affairs responsibly and effectively, with adequate
risk management systems.
- Principle 8 of the FCA’s Principles for Businesses
– ‘Conflicts of interest’ - A firm must manage conflicts of
interest fairly, both between itself and its customers and between a customer
and another client.
- On
1 April 2013 the FCA became responsible for the conduct supervision of all
regulated financial firms and the prudential supervision of those not
supervised by the Prudential Regulation Authority (PRA).
- The
FCA has an overarching strategic objective of ensuring the relevant markets
function well. To support this it has three operational objectives: to secure
an appropriate degree of protection for consumers; to protect and enhance the
integrity of the UK financial system; and to promote effective competition in
the interests of consumers.
- Find out more information about the FCA.