Dive Brief:
- Barclays has agreed to pay $361 million to settle charges that it sold far more in structured debt products than it was allowed, the Securities and Exchange Commission (SEC) said Thursday.
- Individual employees may face disciplinary action and pay cuts in connection with the findings of the SEC review, Barclays said in its own statement Friday.
- The settlement puts to rest an error the bank discovered in March, when it abruptly halted share creation in two exchange-traded notes after realizing it had oversold its limit by $17.7 billion.
Dive Insight:
The error stems from a previous SEC enforcement action. As part of a $97 million settlement that it overcharged clients, Barclays in 2017 lost its status as a “well-known seasoned issuer.” That status had previously enabled the bank to automatically update the amount of structured products it meant to sell. The bank in 2019 set its maximum at $20.8 billion, but in March realized it had sold some $38.5 billion.
Barclays personnel understood that the bank, upon losing its status, needed to track actual offers and sales of securities in real time against the bank’s registered limit, but it failed to establish an internal control to do so, the SEC said Thursday.
The regulator did, however, note that Barclays repaid investors upon discovering the error. The $361 million figure breaks down to a $200 million fine to the SEC and $161 million in disgorgement and pre-judgment interest.
"While we acknowledge Barclays’ efforts to identify, disclose and remediate this conduct, the control deficiencies and the scope of the conduct at issue here was simply staggering,” Gurbir Grewal, director of the SEC’s division of enforcement, said Thursday. “The time for other firms employing similar shelf registrations to take notice and improve their internal compliance and control functions is now.”
Barclays neither admitted nor denied the SEC’s findings but agreed to cease and desist, and to take compliance measures.
“The fact that this over-issuance matter occurred in the first place is particularly disappointing,” Barclays CEO C.S. Venkatakrishnan told The Wall Street Journal in July, adding that the bank would “try ceaselessly to improve” and avoid future mistakes.
Thursday’s penalty marks the second nine-figure regulatory hit Barclays has taken this week. The SEC and the Commodity Futures Trading Commission (CFTC) fined the British lender $200 million Tuesday in connection with industrywide misuse of messaging platforms and faulty record-keeping that cost 11 banks a total of $1.8 billion in penalties.
Barclays had anticipated Thursday’s fine. It estimated in July the debt-product oversale error would cost the bank about £581 million, according to The Wall Street Journal. It set aside £165 million during the second quarter to cover a potential SEC penalty, the Financial Times reported.
