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Barclays v The Financial Conduct Authority
- Feb 14, 2025
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By Ausaf Abbas Experienced Investment Banking Expert of Expert Evidence, International Limited. Previously Ausaf has worked for Merrill Lynch and Morgan Stanley.
In November 2024, the Financial Conduct Authority (FCA) confirmed a £40 million1 fine following the withdrawal of the appeal by Barclays (the ‘Bank‘) to the Upper Tribunal. The offence was that Barclays had failed to disclose arrangements with Qatari entities during its two capital fundraising efforts in 2008. This penalty underscores the importance of transparency and integrity in financial dealings, especially during periods of economic instability.
During the 2008 financial crisis, Barclays carried out two financings to boost its capital in order to avoid a government bailout which many banks had required as the Global Financial Crisis took hold. In the UK it was notable that both RBS/NatWest and Lloyds had been required to take funding from the British Government. In a June 2008 financing Barclays raised £4.5 billion, and then sought to avoid the bailout terms being imposed by the Government via an October 2008 financing, which raised a further £7.3 billion. In both transactions the Bank secured substantial investments from Qatari entities, including Qatar Holdings, as well as from other parties which participated.
Φοβοῦ τοὺς Δαναοὺς καὶδῶρα φέροντας
(Fear the Danaans even when bearing gifts!)
Laocoön
Alongside both financings Barclays entered into advisory service agreements with associated Qatari entities, but failed to disclose the £322 million in fees paid. Barclays claimed that these were “legally separate” contracts from the fund raising, but the FCA argued the advisory agreements were an absolutely integral part of the commercial package the Qataris required to participate in the two capital raisings and the associated fees should have been disclosed to the market. These fees had the effect of reducing the subscription price to the Qatari investors to a price per share that the Qatari negotiators insisted on. Other investors in the fund raisings were not afforded any similar offer and hence ended up effectively paying a substantially higher price per share.
The Listing Rules (principally LR 1.3.3R) provide that “An issuer must take reasonable care to ensure that any information if notifies to a [Regulated Information Service] or makes available through the [Authority] is not misleading, false, or deceptive and does not omit anything likely to affect the import of the information.” The FCA deemed the failure to disclose the details of the advisory agreements to have breached the Listing Rules and the lack of transparency as “reckless and lacking integrity”, emphasizing that such undisclosed payments deprived other investors in the fund raisings and the market of crucial information.
The £40 million fine reflects the FCA’s commitment to enforcing transparency and accountability within the financial sector. By penalizing Barclays for its past misconduct, the FCA aims to deter similar behaviour in the future and to promote a culture of integrity among financial institutions. This action serves as a reminder to all banks of the critical importance of full disclosure and ethical conduct, particularly during times of financial distress.
In response to the fine, Barclays expressed its disagreement with the FCA’s findings but chose not to contest the penalty, indicating a desire to move forward and focus on current operations.
It is particularly relevant that the Upper Tribunal had required John Varley, the Group Chief Executive Officer of the Bank at the time, to give evidence at the hearing. Mr Varley had personally approved the larger of the two Qatari payments.
Some financial commentators have pointed to the long delay in bringing this case to a conclusion, given the events occurred over 16 years ago. This delay occurred because once the FCA issued its Warning Notice in October 2013 the Serious Fraud Office (SFO) stepped in and commenced criminal proceedings against the Bank and a number of its senior executives. That case ultimately collapsed in 2020. Following that, PCP Capital Partners then pursued a civil case against Barclays regarding the October capital raising, which ended in 2021. It was only then that the FCA issued its Decision Notice setting out its case against Barclays in October 2022. In our opinion it is only right that the Regulator sought to stand aside and not have concurrent cases running that may have caused a conflict with the other criminal and civil cases.
This case highlights the enduring impact of the 2008 financial crisis on regulatory practices and the ongoing efforts to strengthen the financial system’s resilience. The FCA’s actions demonstrate that, even years after the events in question, regulatory bodies remain vigilant in addressing past misconduct to ensure a more transparent and accountable financial industry. All shareholders need to be treated similarly both in terms of offering price in a fund raising and the provision of information.
In conclusion, the FCA’s £40 million fine against Barclays for failing to disclose arrangements with Qatari entities during the 2008 financial crisis underscores the critical importance of transparency and integrity in the banking sector. This penalty serves as a reminder to all financial institutions of the necessity to maintain ethical standards and fully disclose pertinent information to investors and the market, thereby fostering trust and stability within the financial system.
Links
Link: Barclays PLC and Barclays Bank PLC v The Financial Conduct Authority, Decision Notice of 21st October 2022
www.fca.org.uk/news/press-releases/fca-publishes-decision-notices-barclays-plc-and-barclays-bank-plc
Link: Barclays PLC v The Financial Conduct Authority, Final Notice of 25th November 2024
www.fca.org.uk/publication/final-notices/barclays-plc-2024.pdf
Footnotes
Footnote 1: In 2022 the FCA had imposed a fine of £40m on Barclays PLC and £10m on Barclays Bank PLC, a total of £50m. The Final Decision Notice of 25th November 2024, reduced the Barclays PLC fine to £30m, but maintained the Barclays Bank PLC fine of £10m, making a total of £40m.
Ausaf Abbas of Expert Evidence was retained as an expert witness on behalf of the FCA in the appeal to the Upper Tribunal. He would have been asked to give evidence under cross examination if the hearing had gone ahead.
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Disclaimer: The above case summary is derived from publicly available information and is not intended to be anything more than a statement of the author’s views on the salient factors of the case. It is not intended and should not be understood to be legal advice of any sort. All views are solely those of the author and no use of the summary should be made without statements being checked against the source of information. Expert Evidence Limited takes no responsibility for the views expressed. The copyright of the summary is owned by Expert Evidence Limited but may be used with written permission which may be forthcoming on application through the contact us page. This news item is not intended to imply or suggest that Expert Evidence Limited was involved in the case, only that it is considered an interesting legal development.