Barclays Said to Face Fine Over Client Asset Segregation

Aug 15, 2014 9:18 am ET

(Updates with shares in last paragraph.)

Aug. 15 (Bloomberg) -- Barclays Plc is poised to be hit with its second fine by British regulators over failures to segregate client assets properly, a setback to Antony Jenkins’s efforts to put the lender’s legal woes behind him, two people with knowledge of the matter said.

The fine, which is still under discussion, may come later this year and could surpass the 59.5 million-pound ($99 million) penalty Britain’s second-largest lender paid to the Financial Conduct Authority as part of its 290 million-pound settlement with regulators over the rigging of benchmark interest rates, said one of the people, who asked not to be identified because the talks are private.

The lender is being probed for what would be the second breach of so-called client asset segregation rules in three years, said the people. Barclays was fined 1.1 million pounds in 2011, and while clients didn’t suffer any losses, they were put at risk of loss, the regulator said at the time. The watchdog accepted the violations weren’t deliberate and Barclays had already addressed its failures.

Jenkins, 53, who took over as chief executive officer after Robert Diamond left in the wake of the Libor-rigging scandal, has tried to restore investor and regulators’ confidence in the lender. Any fine would add to the 900 million pounds Chirantan Barua, an analyst at Sanford C. Bernstein Ltd., estimates the lender will have to pay this year to settle probes into the alleged manipulation of currency markets and into its private trading venue, or dark pool.

JPMorgan Fine

Improving the protection of client money in investment banks has been at the forefront of the FCA’s agenda, with revised rules published in June. The changes focus on the segregation of client assets and record keeping.

“The protection of client assets is central to confidence in the U.K. markets and fundamental to consumers’ rights,” David Lawton, FCA head of markets, said at the time.

Officials at the FCA and London-based Barclays in London declined to comment on the negotiations.

The British regulator’s biggest fine to date over client asset separation is the 33.3 million-pound penalty imposed on JPMorgan Chase & Co.’s London unit in 2010 after it failed to segregate an average of $8.6 billion of customer funds over a period of seven years.

Lehman Collapse

U.K. authorities stepped up enforcement of client-money rules after the bankruptcy of Lehman Brothers Holdings Inc. in 2008. Lehman’s former U.K. unit, Lehman Brothers International Europe, failed to segregate billions of dollars of client funds from its house accounts, leaving creditors with competing claims that resulted in years of litigation.

Charles Kuhn, a London-based lawyer who previously worked at the FCA, said in a telephone interview today that the regulator usually follows up with institutions “even years after a breach has occurred and been remedied.”

“This is to make sure that the revised systems and controls remain in place,” he said. “If in the course of that review further failings are discovered, then in the absence of a good explanation the FCA is likely to adopt a very robust stance.”

Barclays could face as much as 7 billion pounds of litigation costs in the next four years, according to a report by Nomura International Plc last month. The bank took a 900 million-pound charge to cover the costs of compensating clients improperly sold loan insurance in the first half, bringing its total provision to 4.85 billion pounds.

The shares rose 0.9 percent to 219.85 pence at 2:09 p.m. in London. They have dropped about 19 percent this year, making Barclays the worst performer among Britain’s five largest banks.