Following the FSA’s announcement that it would give Barclays the largest fine ever levied by the Authority for failing to report trades in its investment banking arm, Barclays Capital, Jacqui Hatfield, Partner in the financial industry group at international law firm Reed Smith, comments:

Working with the FSA 

"The FSA is keen to achieve its objective of credible deterrence and is increasing fines."

"In any notification to the FSA following an internal review such as in relation to transaction reporting, I would suggest that firms make it clear that they have dealt with any issues and set out clearly how they have done so and (if possible) emphasise the short time scale during which there have been issues so that the FSA is less likely to carry out enforcement action for failings in adequacy of systems and controls." 
 
Danger of system/control failures in the financial sector 

"I believe that systems and controls failures are the biggest enforcement/disciplinary risk to regulated firms and approved persons.  The requirement to have adequate systems and controls is very widely drafted and, under the outcomes focused approach of the FSA, it can capture every potential error made by a regulated firm and the fines for breaching the requirement can be huge. 

"Following this case, authorised firms should actively review their transaction reporting procedures in particular but systems generally and ensure that they are effective."

"Whether and to what extent the firms should share their findings of such an internal review with the FSA is a difficult issue.  Firms will need to bear in mind that in order to comply with Principle 11, they must notify the FSA of any significant breach of the Principles and rules and therefore in order to comply with Principle 11 may be forced to notify the FSA.  The danger for firms is that having reported such matters (even following an internal review not requested by the FSA) in compliance with Principle 11, enforcement action can occur as a result, although potentially at a reduced level of fine."  

Background

"This follows and is not as much as Aon Ltd's fine of £5.25m for failings in its anti-bribery and corruption systems and controls in January this year (which would have been £7.5m if they had not been able to take the 30% discount under the FSA's executive settlement procedures, because they agreed to settle at an early stage).  NB in 2004, Bank of Scotland was fined £1.25m for anti money laundering systems and controls failures.  This fine was seen as very large at the time but is much less than Aon and Barclays. "

- ends –

Notes to editors

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