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FCA Fines Barclays GBP26 Million Over London Gold Fixing

By Kitco News
Friday May 23, 2014 8:48 AM

(Kitco News) - The Financial Conduct Authority has fined Barclays Bank Plc GBP26 million for failing to adequately manage conflicts of interest between itself and customers, as well as “systems and controls failings,” connected to the London gold fixing, the U.K. regulatory agency said Friday.

The FCA also alleged that a former Barclays trader, Daniel James Plunkett, exploited the weaknesses in Barclays’ systems and controls to influence the afternoon gold fixing on June 28, 2012. As a result, said the FCA, Barclays was not obligated to make a $3.9 million payment to a customer, although the bank later compensated the customer in full.

The FCA said it fined Plunkett GBP95,600 and banned him from performing any function in relation to any regulated activity.

The FCA also said Barclays and Plunkett agreed to settle at an early stage, thus qualifying for a 30% discount to their respective fines.

“Barclays’ failure to identify and manage the risks in its business was extremely disappointing,” said Tracey McDermott, the FCA's director of enforcement and financial crime, in a press release. “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 behavior 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.”

The FCA announcement comes at a time when the gold fixing has been under increased scrutiny from regulators and some market participants. The gold fixing is a price-setting mechanism that allows market users to buy and sell gold at a single quoted price. The FCA said Barclays has contributed to the gold fixing since 2004.

The FCA news release alleged the following:

“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 28 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. fold 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$3.9 million payment to its customer, and Plunkett’s book profited by US$1.75 million (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 fold 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 fold fixing. Further, Plunkett misled both Barclays and the FCA by providing an account of events that was untruthful.”

The FCA said it fined Barclays because it breached Principles 3 and 8 of the FCA’s Principles for Business.
Principle 3 was breached because Barclays failed to take reasonable care to organize and control its affairs responsibly and effectively, with adequate risk management systems, said the FCA. The regulatory organization said Barclays should have created adequate policies to manage the way its traders participated in the fixing, provided specific training and created systems and reports to monitor traders’ activity.

The FCA said Barclays also breached Principle 8 by failing to adequately manage certain conflicts of interest between itself and its customers.

 

By Allen Sykora of Kitco News; asykora@kitco.com

 

 

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.
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