Gold failings cost Barclays £26m
9:28am Friday 23rd May 2014 in © Press Association 2014
Barclays has been fined £26 million by the City watchdog over failings in relation to the fixing of the price of gold over a nine-year period.
The Financial Conduct Authority (FCA) said the bank had failed to manage conflicts of interest between itself and its customers in relation to the way the price of gold is set, between 2004 and 2013.
Its announcement focused on the behaviour of Daniel James Plunkett, who was a trader on the Barclays precious metals desk, on June 28 2012.
The FCA said that, on that day, Mr Plunkett "exploited the weaknesses in Barclays' systems and controls to seek to influence that day's 3pm gold fixing and thereby profited at a customer's expense".
It said that, as a result, Barclays did not have to make a 3.9 million US dollar (£2.3 million) payment to a customer, though it later compensated the customer in full.
Mr Plunkett's actions boosted his own trading book by 1.75 million US dollars (£1.04 million), the FCA said.
The watchdog has fined him £95,600 and banned him from the industry.
Mr Plunkett's actions came just after Barclays had agreed a £290 million settlement with US and UK regulators over the rigging of Libor and Euribor interbank lending rates in a scandal that precipitated the resignation of chief executive Bob Diamond.
Tracey McDermott, the FCA's director of enforcement and financial crime, said the gold-fixing failings had once again tarnished the industry's reputation.
She said: "A firm's lack of controls and a trader's disregard for a customer's interests have allowed the financial services industry's reputation to be sullied again.
"Plunkett has paid a heavy price for putting his own interests above the integrity of the market and Barclays' customer.
"Traders who might be tempted to exploit their clients for a quick buck should be in no doubt - such behaviour will cost you your reputation and your livelihood.
"Barclays' failure to identify and manage the risks in its business was extremely disappointing. 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 behaviour 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."
Barclays has been part of the panel of banks that sets the gold price since 2004 - a mechanism that allows market users to buy and sell the precious metal at a single quoted price.
The finding against Mr Plunkett centred on him placing certain orders to try to push the gold price fix below a "barrier" of 1,558.96 US dollars, which it eventually did.
If the price had fixed above this level, Barclays would have been required to make a payment to a customer but if it had not it would not.
Soon afterwards, the customer became aware that the price had fixed just below the barrier and sought an explanation from Barclays.
When this was relayed to Mr Plunkett he failed to disclose that he had placed orders and traded during the gold fixing, the FCA said.
"Further, Plunkett misled both Barclays and the FCA by providing an account of events that was untruthful.
"Plunkett's misconduct is particularly serious because he preferred his interests over those of a customer and his actions had the potential to have an adverse effect on the gold fixing and the UK and international financial markets."
The watchdog found that between June 7 2004 and March 21 2013, Barclays failed to take reasonable care to "organise and control its affairs responsibly and effectively", including procedures monitoring and training in relation to gold fixing.
It also said that Barclays failed to manage adequately the "inherent conflict of interest" between it participating in the gold fixing while also selling to customers options that were dependent on the price fixed in that process.
"These failings led to an increased risk of inappropriate conduct by Barclays' traders participating in the gold fixing," the FCA said.
The watchdog said it was engaging with the administrators behind UK benchmarks including the gold fix over their plans to assess compliance with international market principles.
It said Barclays and Mr Plunkett had agreed to settle at an early stage of the probe, meaning they each qualified for a 30% discount to their fines.
This meant the bank's penalty was reduced from £37.2 million and the trader's was cut from £136,600.
Barclays chief executive Antony Jenkins said: "We very much regret the situation that led to this settlement.
"Barclays has undertaken a significant amount of work to enhance our systems and controls and is committed to the highest standards across all of our operations.
"While there is much more to do to achieve the deep-rooted cultural change we embarked upon at the start of 2013, Barclays today has significantly changed for the better.
"We are committed to remain focused on delivering on this agenda, underpinned by our purpose and values. These situations strengthen our resolve to improve."
Barclays said the FCA had acknowledged that the bank brought the conduct of its trader promptly to the attention of its predecessor, the Financial Services Authority, and that it had also fully co-operated with the FCA's investigation.
"As has been acknowledged by the FCA, Barclays has committed significant resources to enhancing its systems and controls in relation to the gold fixing, as well as in relation to other reference rates," the bank said.
Mr Plunkett was understood to have been suspended before being asked to leave Barclays.