Barclays has agreed to pay $361mn to settle charges that a clerical error led the UK bank to offer for sale billions of dollars worth of structured financial products that it was not permitted to trade.
The error dated from 2019 to March this year, when Barclays offered $17.7bn worth of products that had not been registered for sale with the US Securities and Exchange Commission — an “unprecedented” amount of unregistered securities, the regulator said in announcing the penalty on Thursday.
The SEC alleged that the violations stemmed from the bank’s failure to implement internal controls to monitor the sales in real time. “This case highlights why it is essential for firms like Barclays to have robust internal controls over their offers and sales of securities,” Gurbir Grewal, director of the SEC’s enforcement division, said in a statement.
The $361mn payment consists of a $200mn civil penalty and $161mn disgorgement of interest earned, which the SEC said had been satisfied by Barclays repayment back to investors when the error was uncovered. In the second quarter, Barclays had also provisioned £165mn to cover a potential penalty from the SEC.
Barclays had previously said it would cost the bank £450mn to compensate investors for the clerical error. The bank, which neither admitted nor denied the SEC’s findings, declined to comment.
The roots of the clerical error trace back to an earlier SEC enforcement action that involved Barclays paying $97mn to settle allegations that it had overcharged clients by nearly $50mn. The bank at the time neither admitted nor denied the SEC’s findings.
As a result of the action, the bank in 2017 lost a licence that enabled it to automatically update the amount of structured products, which are pre-packed investment strategies based on derivatives, that it intended to sell. In 2019, Barclays set its maximum at $20.8bn, but in March discovered it had vastly exceeded that amount.
Without the licence, the bank’s staff understood that they would have had to set up a system to track sales of securities relative to offerings that had been registered with the regulator, according to the SEC. The regulator, however, said that no such mechanism was put in place.
Thursday’s SEC action comes in the same week that the SEC and the Commodity Futures Trading Commission fined Barclays $200mn over widespread lapses in record-keeping practices, part of a $1.8bn raft of penalties against 11 banks and brokers.
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