FCA Bares its Teeth at Barclays

Barclays is facing a £50m fine from the Financial Conduct Authority (FCA) for breaching disclosure rules during an investment deal with Qatari investors in 2008.

Details of the potential breach of the disclosure rules emerged as Barclays issued its latest prospectus for a £5.9bn fundraising which completed on 4 October 2013. The recent share issue was to plug a capital shortfall due to higher regulatory leverage ratios.

The FCA claim that Barclays acted “recklessly” and “without integrity towards holders and potential holders” of its shares by failing to disclose payments made to Qatari investors relating to share issues in 2008.

The FCA’s aggressive approach in this case highlights once again the need for strict compliance controls.

A Revealing Prospectus

As part of its latest share issue, Barclays had to disclose in its prospectus material facts about perceived or potential financial risks to its business.

These included various investigations being undertaken by a number of regulators including the Office of Fair Trading, the Serious Frauds Office and the US Department of Justice. The investigations related to, among other things, possible manipulation of the US energy market and the fixing of the LIBOR rate which has already resulted in fines for the bank.

The potential breach of the disclosure rules by Barclays in 2008 was also revealed.

The FCA Claim Against Barclays

Barclays stand accused of clandestinely agreeing to pay £322m to investors to garner their support for share issues carried out at the height of the financial crisis in 2008.

Two separate issues were made totalling around £12bn, over £4.5bn of which was taken up by Qatar Holding – part of the state owned Qatari sovereign wealth fund. The investment helped Barclays avoid the part-nationalisation that affected it peers.

Barclays contests the FCA’s allegation that it induced Qatari investors into purchasing stock on the basis that the payments were fees for advisory services and not subject to disclosure.

Non-disclosure Under the FCA Rules?

The existence of a fee agreement was disclosed in the June 2008 capital raising but not in the later one. The fees relating to the later issue totalled £322m payable over five years.

Barclays claimed that the advisory service fees were around £100m in June and £300m in October, and did not need to be disclosed under the FCA rulebook.

However, the FCA disputed this argument on the grounds that the payments were not advisory fees at all but actually served as inducement-payments which are required to be disclosed.

Prioritising Compliance is Good for Business

For firms regulated by the FCA, having an effective compliance function is key to identifying and mitigating risk and protecting the business from the censure of the financial regulator.

Compliance with FCA regulations is aimed at ensuring that firms act with the needs of their clients in mind and avoid putting the profit of the firm ahead of the benefits for its customers. For specialist regulatory advice contact James Crighton jcrighton@rollingsons.co.uk or telephone 0207 611 4848.