In praise of Barclays’ compliance program, antitrust enforcers offer insights

Barclays Building

9 December 2016. By Richard Vanderford.

Five of the world’s largest banks will appear before a Connecticut federal judge next week to face sentencing over involvement in manipulating key financial benchmarks. Of those, only Barclays has received credit for its efforts to improve its culture in the wake of the bank’s wrongdoing, a development that prosecutors recently attributed to significant improvements to its compliance program and “dramatic” changes to its corporate culture.

Barclays in 2015 agreed to plead guilty over its involvement in foreign exchange rate-fixing. Prosecutors charged that the bank’s traders conspired with others in a chatroom they discreetly titled “The Cartel.”

JPMorgan Chase, Citicorp and the Royal Bank of Scotland also admitted to wrongdoing, while a fifth bank, UBS, entered a guilty plea in connection with its manipulation of the London Interbank Offered Rate.

Attorney General Loretta Lynch at the time called the prosecutions “a stark reminder that this Department of Justice intends to vigorously prosecute all those who tilt the economic system in their favor.”

Amid the news over the historic pleas, though, Barclays won attention over a single line in its plea agreement that said that the bank had been given credit for its compliance program, a first for the US Justice Department’s antitrust division.

In a submission with the Connecticut federal court that will sentence the bank next week, prosecutors outlined their views on the program, a filing that could offer other companies facing antitrust enforcers a view of which compliance efforts “count.”

Barclays certainly isn’t getting off lightly. At $650 million, the bank’s recommended fine, if approved, would be one of the largest penalties ever assessed for an antitrust violation. Prosecutors, though, said the penalty they sought would be higher still but for the bank’s impressive compliance efforts.

The program had some shortcomings, clearly, since the bank committed a crime despite its existence. But prosecutors lauded steps the bank took to fix its problems.

It fired senior management and replaced them with a team that “from the outset, emphasized the importance of compliance and remediation,” prosecutors said.

“This message was matched by action,” they said.

The bank also initiated a worldwide review of its governance that included a detailed examination of its controls and management, and a survey of 9,000 staff that led to changes in how the program was structured. Legal and compliance was cleaved off from the business side, for example.

Barclays took steps that directly addressed the wrongdoing, expanding the monitoring of electronic communications and issuing new controls on chat rooms.

Importantly, Barclays took these steps even though it didn’t have to. The bank isn’t yet on probation, and can’t be forced to do anything, but made the changes quickly after learning of its misconduct, prosecutors said.

The bank has also impressed prosecutors with its “extraordinary dedication” to quickly reporting potential misconduct.

“In sum, the defendant’s commitment to compliance and remediation has been exemplary and effective, and its transparency in reporting to the United States is commendable,” prosecutors said.

The efforts have clearly won Barclays plaudits from prosecutors and a reduced fine, both major benefits for the institution. They might also help it avoid being on the front lines — and in the headlines — during the inevitable next banking scandal, an outcome the bank would doubtless consider well worth its investment.

	Eliot Gao