Salz Review - Wall Street Journal

61
Salz Review
An Independent Review of Barclays’ Business Practices
basis client money held in sterling money market deposits”. This had happened for
over eight years, between 1 December 2001 and 29 December 2009. Such client
monies were segregated overnight but not on an intra-day basis. The average daily
amount of client money involved increased from £6 million in 2002 to £387 million
in 2009. The highest amount held in the account and at risk at any one time was
£752 million. 99
6.35 Other firms have been fined by the FSA for client money segregation matters – for
instance, JP Morgan (£33.3 million in June 2010). 100 We consider that the Barclays
breach was allowed to continue for too long, but was eventually corrected quickly.
The bank appears to have prioritised business growth over ensuring that the
underlying operational systems and processes were adequate to protect its
customers’ interests.
Transaction Reporting
6.36 In order to detect and investigate suspected market abuse such as insider trading
and market manipulation, the FSA requires firms to submit data of reportable
transactions by close of business on the day after a trade is executed. While reviewing
a suspected incident of market abuse by a third party, the FSA discovered
discrepancies in Barclays’ data, which during a subsequent review of the bank’s
transaction reporting arrangements revealed that it did not have adequate systems
and controls to satisfy the transaction reporting requirements. Over a two-year
period, 57.5 million transactions across all asset classes had been inaccurately
reported, including 17 million transactions where no report had been submitted.
6.37 The FSA consequently fined Barclays Capital Securities Ltd (the subsidiary in which
the breaches occurred) and Barclays Bank PLC (the parent company) £2.45 million
in August 2009, 101 the largest of the six fines the FSA has imposed for failures to
provide accurate transaction reports and for serious weaknesses in systems and
controls in transaction reporting. The FSA remarked that “complete and accurate
transaction reports are an essential component of the FSA’s market monitoring
work. Barclays’ reporting failures could have a damaging impact on our ability to
detect and investigate suspected market abuse. The penalty imposed on Barclays is
significantly higher than previous penalties imposed for transaction reporting errors.
This reflects the serious nature of Barclays’ breaches and is a warning to other firms
that the FSA will not tolerate inadequate systems and controls.” 102
6.38 We consider that this is another example of inadequate systems and controls in a
core area of the bank's business. Causes could include under-investment in relevant
IT systems and inappropriate reliance on manual intervention.
99 FSA, “FSA levies £1.12m fine on Barclays Capital for client money breaches” (FSA/PN/014/2011), 26
January 2011.
100 FSA, “FSA levies largest ever fine of £33.32m on J.P.Morgan Securities Ltd for client money breaches”
(FSA/PN/089/2010), 3 June 2010.
101 FSA, “FSA fines Barclays £2.45m for failures in transaction reporting” (FSA/PN/117/2009), 8
September 2009.
102 Ibid.