Barclays Fined $44M for Gold Fixing Failures and Trader Daniel James Plunkett Banned

  on May 23 2014 7:19 AM
  • Barclays Bank_London2
    Bicylces for hire, sponsored by Barclays, are lined up in a rack in London on Feb. 6, 2013. Reuters/Luke MacGregor
  • Barclays Bank_London
    Logos are seen outside a branch of Barclays bank in London on July 30, 2013. Reuters/Toby Melville
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UK's financial regulator, the Financial Conduct Authority, fined Barclays 26 million pounds ($43.8 million) for failings related to fixing London gold prices, and also banned and fined trader Daniel James Plunkett for inappropriate conduct.

The regulator said, in a statement, that it slapped Barclays with a fine after it failed to adequately manage conflicts of interest between itself and its customers as well as systems and controls failings, in relation to the gold fixing. These failures continued from 2004 to 2013, the FCA added.

"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. "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 behavior will cost you your reputation and your livelihood.

"Barclays' failure to identify and manage the risks in its business was extremely disappointing. 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, the FCA added.

"We expect all firms to look hard at their reference rate and benchmark operations to ensure this type of behavior isn't being replicated. Firms should be in no doubt that the spotlight will remain on wholesale conduct and we will hold them to account if they fail to meet our standards."

What Happened?

The FCA said that, on June 28, 2012, former Barclays trader Plunkett exploited weaknesses in Barclays' systems and controls to influence that day's reference price for gold and thereby profited at a customer's expense.

The watchdog said that, as a result of Plunkett's actions, Barclays was not obligated to make a $3.9 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 pounds and banned him from performing any function in relation to any regulated activity.

Who was Plunkett and What Was His Role?

Plunkett was a director on the precious metals desk at Barclays and was responsible for pricing products linked to the cost 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, which referenced the price of gold at a particular time during the day on June 28, 2012.

If the price fixed above $1,558.96 (the Barrier) during the determination of the price of gold, which took place at 1500 BST (10 a.m. EDT), then Barclays would be required to make a payment to its customer. But if the price fixed below the Barrier, Barclays would not have to make that payment.

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