Barclays Bank and one of its former traders, Daniel James Plunkett, have been fined in relation to Gold Fixing, an important price-setting mechanism that provides market users with the opportunity to buy and sell gold at a single quoted price.
The Financial Conduct Authority (FCA) has fined Barclays Bank £26.03 million (€32.13 million) for failing to adequately manage conflicts of interest between itself and customers as well as systems and controls failings, in relation to the Gold Fixing.
These failures were between 2004 and 2013.
On 28 June, 2012, Plunkett exploited the weaknesses in Barclays’ systems and controls to seek to influence that day’s 3pm Gold Fixing and thereby profited at a customer’s expense.
As a result of Plunkett’s actions, Barclays was not obligated to make a $3.9 million (€2.9 million) 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 and banned him from performing any function in relation to any regulated activity.
Tracey McDermott, the FCA's director of enforcement and financial crime, said: “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. 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".
She added that Barclays’ failure to identify and manage the risks in its business was “extremely disappointing”.
Plunkett was a director on the precious metals desk at Barclays and was responsible for pricing products linked to the price of precious metals and managing Barclays’ risk exposure to those products.
Plunkett was responsible for pricing and managing Barclays’ risk on a digital exotic options contract that referenced the price of gold during the 3pm Gold Fixing on 28 June 2012. If the price fixed above $1,558.96 (the barrier) that day, then Barclays would be required to make a payment to its customer. But if the price fixed below it, Barclays would not have to make that payment.
During the Gold Fixing, 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 $3.9 million payment to its customer, and Plunkett’s book profited.
But shortly after the Gold Fixing the customer became aware that the price had fixed just below the barrier and sought an explanation from Barclays. When Barclays relayed the customer’s concerns to Plunkett on 28 and 29 June, he failed to disclose that he had placed orders and traded during the Gold Fixing, the FCA says. Further, Plunkett misled both Barclays and the FCA by providing an account of events that was untruthful.
The FCA has fined Barclays because it failed to take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk management systems. It also failed to adequately manage certain conflicts of interest between itself and its customers.
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