FSA’s Compounding Fines on Barclays: £7.7m for Several Failures, £60m for Redress of Customers

Jack Humphrey, Regulatory journalist
January 18, 2011 /

British watchdog Financial Services Authority (FSA) has imposed a financial penalty of £67.7 million on Barclays PLC, the highest fine it so far handed out to a retail bank for failing to advise customers in relation to the sale of funds.

In a Final Notice it forwarded to Barclays, FSA cited several failures on the part of the bank “to take reasonable care to ensure the suitability of its advice regarding the Funds for customers,” therefore seeking the bank to pay £7.7 million in fines. The financial penalty would have been £11 million if Barclays did not qualify for a 30 percent reduction in accordance with FSA’s executive settlement procedures, the authority said.

The penalty emanated from Barclays’s sale of Aviva’s Global Balanced Income Fund (the Balanced Fund) and Global Cautious Income Fund (the Cautious Fund) to 12,331 customers for £692 million overall. FSA’s investigation revealed several failures in the way Barclays sold the funds, including its failure to ensure that sales staff possess enough skills and knowledge to explain to customers the risks associated with the funds.

In addition, Barclays also failed to make sure that materials given to customers such as brochures could not mislead them with inadequate information and explanation about the risks that go with the funds they bought. FSA also said Barclays did not adequately monitor the process of sales of funds and failed to respond promptly when issues emerged.

“In fact, of the 12,000 or so investors, most of whom were retired or nearing retirement, 1,730 complained about the advice they were given to invest in the funds,” the FSA said.

The investigation showed that 51 percent of the Cautious Fund, or 3,099 in sales, and 74 percent of the Balance Fund equivalent to 3,378 in sales, “have been identified as requiring further consideration.”

Thousands of investors, majority of which are on their retirement already or close to it, have borne the brunt of Barclays’s failures, FSA’s managing director of enforcement and financial crime Margaret Cole said.

The bank has already paid an initial £17 million, with more than £42 million in addition to it that is expected to be secured by FSA to redress the investors who received deficient advice from Barclays.

 

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