SEC fines Barclays $360mn for ‘unprecedented’ $18bn amount of unregistered securities

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Barclays has agreed to pay $361 million to settle charges that a clerical mistake caused the UK bank to offer for sale billions of dollars in structured financial instruments that it was not authorized to trade. The error occurred between 2019 and March of this year, when Barclays offered $17.7 billion in products that had not been registered for sale with the US Securities and Exchange Commission — an “unprecedented” amount of unregistered securities, according to the regulator, which announced the penalty on Thursday.

According to the SEC, the breaches were caused by the bank’s inability to develop internal controls to monitor sales in real time. “This prosecution demonstrates why it is critical for corporations like Barclays to maintain rigorous internal controls over their offers and sales of securities,” said Gurbir Grewal, head of the SEC’s enforcement division.

The $361 million settlement includes a $200 million civil penalty and a $161 million disgorgement of interest earned, which the SEC said was fulfilled by Barclays’ reimbursement to investors after the mistake was discovered. Barclays also set aside £165 million in the second quarter to meet a possible SEC penalty.

Barclays previously said that compensating investors for the clerical mistake would cost £450 million. The bank refused to comment, saying it had neither confirmed nor rejected the SEC’s allegations.

The clerical mistake stems from an earlier SEC enforcement case in which Barclays paid $97 million to settle charges that it overcharged customers by approximately $50 million. At the time, the bank neither accepted nor rejected the SEC’s conclusions. As a consequence of the case, the bank lost a license in 2017 that allowed it to automatically update the number of structured products, which are pre-packaged investment plans based on derivatives, that it planned to offer. In 2019, Barclays established a limit of $20.8 billion, but learned in March that it had been far surpassed.

According to the SEC, without the license, the bank’s personnel realized that they would have required to put up a system to monitor sales of securities in relation to offers that had been registered with the regulator. However, the regulator said that no such system was implemented.

The SEC’s move on Thursday comes in the same week that the SEC and the Commodity Futures Trading Commission penalized Barclays $200 million for significant record-keeping violations, as part of a $1.8 billion raft of fines levied against 11 banks and brokers.

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