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Barclays slapped with $44 million fine over gold price fix

A couple walks past a Barclays branch in downtown Rome May 8, 2014. REUTERS/Max Rossi
A couple walks past a Barclays branch in downtown Rome May 8, 2014. REUTERS/Max Rossi

By Steve Slater and Huw Jones

LONDON (Reuters) - Barclays Plc has been fined 26 million pounds ($43.8 million) for failures in internal controls that allowed a trader to manipulate the setting of gold prices, just a day after the bank was fined for rigging Libor interest rates in 2012.

Britain's Barclays is the first bank to be fined over attempted manipulation of the 95-year-old London gold market daily "fix", although a source familiar with the fine said it was a one-off and not part of a wider investigation into gold price rigging.

It marks another blow to Barclays' attempts to put past problems behind it.

The Financial Conduct Authority said on Friday there were failings at Barclays from 2004 until 2013, but the key event occurred on June 28, 2012, a day after UK and U.S. regulators fined it $450 million over attempted Libor rigging.

"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," said Tracey McDermott, the FCA's director of enforcement and financial crime.

The FCA said it had banned former Barclays trader Daniel James Plunkett and fined him 95,600 pounds for exploiting weaknesses in the bank's systems.

"Plunkett's actions came the day after the publication of our Libor and Euribor action against Barclays. The investigation and outcomes in that case meant that the firm, and Plunkett, were clearly on notice of the potential for conflicts of interests around benchmarks," McDermott said.

Plunkett fixed the price in order to avoid the payment of $3.9 million to a customer under an option, which boosted his own trading book by $1.75 million, the FCA said. The bank later compensated the client in full.

On the eve of June 28, Plunkett sent an email to commodities colleagues saying that he was hoping for a "mini puke" the following day. The FCA understood this to mean a drop in the price of gold ahead of the fixing.

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. The FCA said Plunkett gave the watchdog and Barclays untruthful accounts of his trading activity.

Attempts by Reuters to locate and contact Plunkett online were not immediately successful.

RESTORING REPUTATION

Barclays Chief Executive Antony Jenkins is attempting to restore the bank's reputation after a series of scandals, but the emergence of past sins are hampering his efforts. He has said its culture, which has been criticized as high-risk, high-reward, had to change and that systems and controls were improving.

"We very much regret the situation that led to this settlement ... these situations strengthen our resolve to improve," Jenkins said in a statement on Friday.

The FCA said Barclays co-operated with the investigation, which reduced its fine by 11 million pounds.

Barclays was the first bank to be fined for attempted manipulation of Libor, although other banks have since been fined more.

Barclays' head of spot gold trading, Marc Booker, left the bank earlier this month as part of the bank's restructuring and its exit from the commodity business.

The Libor rigging scandal has put scrutiny on how all benchmark prices are set, including London's gold "fix", which dates back to 1919.

Banks arrive at the gold fix through matching buy and sell orders during a twice-daily telephone call, which miners, jewelers and central and commercial banks use to trade gold.

The 117-year old London silver price fix set by Deutsche Bank, HSBC and Bank of Nova Scotia will cease in August, and greater regulatory scrutiny is forcing major changes in how all precious metals prices are set.

The London Bullion Market Association (LBMA) has launched consultation on a possible alternative to the silver benchmark into a legally watertight system that could then be applied to the other precious metals fixes, sources said.

The FCA and several other regulators, including Bafin in Germany and the U.S. Commodity Futures Trading Commission, have indicated they also are looking at the gold fix.

In years gone by, seats at the gold and silver fixing tables were a mark of distinction for a bank, but now most banks do not want to be involved.

Four banks now set the gold price - HSBC, Societe Generale, Bank of Nova Scotia and Barclays. A former fifth member of the fix, Deutsche Bank, resigned on May 12 without a replacement.

The FCA said it was checking with London Gold Market Fixing Limited to see how it was complying with new global rules for administering benchmarks that were brought in after the Libor scandal began to unfold.

The LBMA and London Gold Market Fixing could not immediately reached for comment.

(Additional reporting by Clara Denina. Editing by Veronica Brown and Jane Baird)

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