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FCA fines Barclays 26mn pounds over gold price manipulation

The London News
24 May 2014, 08:23 GMT+10

LONDON - The UK financial sector regular has fined Barclays Bank 26 million pounds after one of its traders was found exploiting the weaknesses in the bank's systems and controls to influence the price fixing of gold and profit at a customer's expense.

The Financial Conduct Authority (FCA) in a statement Friday said it has fined Barclays Bank Plc around 26 million pounds "for failing to adequately manage conflicts of interest between itself and its customers as well as systems and controls failings, in relation to the Gold Fixing." These failures continued over nine years from 2004 to 2013.

Since joining the Gold Fixing on 7 June 2004, Barclays has contributed to setting the price of gold in the Gold Fixing. The Gold Fixing is an important price-setting mechanism which provides market users with the opportunity to buy and sell gold at a single quoted price.

Barclays Bank is one of four banks in London that, twice a day, join together to decide on the gold price based on supply and demand in the market. The other banks are HSBC, Societe Generale and Scotiabank.

On 28 June 2012, former Barclays trader Daniel James Plunkett exploited the weaknesses in Barclays' systems and controls to seek to influence that day's 3:00 p.m. Gold Fixing and thereby profited at a customer's expense, the FCA said.

As a result of Plunkett's actions, Barclays was not obligated to make a $3.9 million (2.3 million pounds) payment to its customer, although it later compensated the customer in full. Plunkett's actions boosted his own trading book by $1.75 million (excluding hedging).

The FCA has fined Plunkett 95,600 pounds and banned him from performing any function in relation to any regulated activity.

"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," said Tracey McDermott, the FCA's director of enforcement and financial crime.

"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."

The regulator pointed out that Plunkett's actions came just a day after Barclays had been fined 290 million pounds by the FCA and US authorities for fixing Libor, the interest rate benchmark.

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," said McDermott.

Barclays chief executive Antony Jenkins said the bank had improved its controls since the incident. "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," Jenkins said.

Barclays and Plunkett agreed to settle at an early stage, qualifying for a 30 percent discount to their respective fines. Without this, Barclays' fine would have been 37.19 million pounds and Plunkett's fine would have been 136,600 pounds.

According to FCA, Plunkett was a Director on the Precious Metals Desk at Barclays and 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 2012.

If the price fixed above $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. Gold 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 $3.9million payment to its customer, and Plunkett's book profited by $1.75million (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 Gold 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 Gold Fixing.

Further, Plunkett misled both Barclays and the FCA by providing an account of events that was untruthful.

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