Not a good start to the year for Barclays. On top of the £7.7m fine for investment advice failings (Barclays Bank), Barclays Capital (BarCap) incurred a £1.12m fine for client money failings.
Although BarCap properly segregated client money overnight, when the deposits matured the following morning the funds flowed into BarCap’s corporate account. It would remain there for between five and seven hours each day until the firm assessed the client money element which would then be segregated again and placed overnight, only for the cycle to continue. This happened over an eight year period; the highest amount at risk at any one time being £752m.
As the press release mentions, should BarCap have become insolvent during that five to seven hour time period, the client money would have been at risk of loss. As is often the case, the firm discovered the co-mingling issue themselves. The discovery arose from a review following receipt of a Dear CEO letter last January, with the FSA being advised in March 2010.
It was accepted that no clients of BarCap suffered any losses and nor did BarCap profit from the breach. The fine, before the traditional 30% discount, is the equivalent to 1% of the daily average amount of unsegregated client money. Although the fine is quite sizeable, it is only a shadow of last year’s £33.3m fine against J P Morgan for client breaches – see Regulatory Roundup No 16.
Firms that do hold client assets are reminded that the FSA has set up a specialist unit to improve compliance with the regulatory regime to protect client assets. Although the majority of firms are in a different league to Barclays, relevant firms may consider this an opportune time to review their existing processes and procedures relating to the handling of client assets.
