Barclays Capital Inc. agreed to pay a $325,000 fine to settle allegations that it failed to properly supervise employees’ outside brokerage accounts, Think Advisor reports.
The penalty, which included a censure, was imposed by the Financial Industry Regulatory Authority following its investigation into the matter.
FINRA determined that from July 2021 through June 2022, Barclays failed to establish and maintain a supervisory system, including written supervisory procedures (WSPs), reasonably designed to supervise employee outside brokerage accounts. As a result, the firm failed to timely collect and review employee outside brokerage account statements for prohibited trading activity in violation of FINRA Rules 3110 and 2010.
Barclays accepted and consented to FINRA’s findings without admitting or denying them.
FINRA said the firm’s WSPs required associated persons to disclose and receive approval to maintain a brokerage account outside of the firm. The firm supervised trading in such accounts and required pre-approval of trading in certain investment products to mitigate against conflicts of interest and trading in material non-public information.
Approximately 93% of employee outside accounts were held at member firms from which Barclays received electronic feeds of account statements that were subject to an automated review process, according to FINRA’s order, which states, “The firm used a manual review process for the remaining 7% of outside accounts that did not use an electronic data feed, requiring either the employee or the other member firm to mail paper statements to a Barclays office.”
The rules violations stemmed from a time beginning in March 2020 when Barclays’ offices were closed to employees for an extended period due to the COVID-19 pandemic.
“Resulting delays and organizational changes created a substantial backlog in unreviewed or missing account statements that the firm failed to timely address,” FINRA said. “From July 2021 through June 2022, the firm failed to either collect or timely review approximately 8,200 account statements from approximately 700 employee-held outside brokerage accounts, or approximately half of all outside accounts for which the firm did not receive an electronic data feed. During this period, the firm’s employees executed 161 trades in these outside accounts without first obtaining preclearance of the trades. These trades were not timely identified as a result of the backlog of unreviewed and missing account statements.”
FINRA said that in June 2022, Barclays modified its review system for manually reviewed outside account statements by establishing an electronic feed for a significant percentage of these outside accounts and a system for employees to upload statements for accounts without an electronic feed. The firm also launched an effort to complete its remedial review of the backlog of unreviewed and missing account statements, which it has completed.
The violations in this matter included:
FINRA Rule 3110(a), which requires members to “establish and maintain a system to supervise the activities of each associated person that is reasonably designed to achieve compliance with applicable securities laws and regulations, and with applicable FINRA rules.”
FINRA Rule 3110(b) provides that “each member firm shall establish, maintain, and enforce written procedures to supervise the types of business in which it engages and the activities of its associated persons that are reasonably designed to achieve compliance with applicable securities laws and regulations, and with applicable FINRA rules.”
A violation of FINRA Rule 3110 is also a violation of FINRA Rule 2010, which requires a member, in the conduct of its business, to observe high standards of commercial honor and just and equitable principles of trade.
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