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Thursday 23 March 2017

17-077MR ASIC accepts enforceable undertaking from Barclays entities

Yesterday, ASIC accepted an enforceable undertaking (EU) from three Barclays foreign financial service providers (FFSPs):

  • Barclays Capital Inc. (BCI) domiciled in the United States of America
  • Barclays Capital Asia Limited (BCAL) domiciled in Hong Kong, and
  • Barclays Capital Securities Limited (BCSL) domiciled in the United Kingdom,

collectively 'the Barclays entities.'

As part of the terms of the EU, the Barclays entities will contribute $500,000 to The Ethics Centre for research and development into the provision of financial services to Australian clients.

The EU was accepted by ASIC following concerns about significant breaches of the conditions of the ASIC class order licensing exemptions relied on by the Barclays entities, including the failure to notify ASIC of breaches within the required time.

The Barclays entities failed to disclose to clients that they were exempt from holding an Australian Financial Services licence (AFSL) and are regulated by the relevant overseas regulatory authority. BCI and BCAL are not able to demonstrate that the requisite disclosure was made to clients since first commencing reliance on the ASIC class order licensing exemption, in 2004 and 2006 respectively. BCSL is not able to demonstrate that the requisite disclosure to clients had been made across a 10 year period from 2004 to 2014. BCI also failed to notify ASIC of certain offshore investigation and enforcement matters within the time required of FFSPs.

ASIC was particularly concerned that the Barclays entities failed to report these material breaches within the 15-day time frame and as a consequence excluded themselves automatically from the benefit of the ASIC class order licensing exemptions. 

To maintain the availability of the services provided by the Barclays entities to the Australian wholesale sector ASIC has granted the Barclays entities conditional individual relief from the obligation to hold an AFSL.

The duration and number of breaches together with the failure to report breaches in time demonstrated serious, systemic weaknesses in the compliance controls implemented by the Barclays entities to meet their Australian regulatory obligations.

Under the terms of the EU the Barclays entities must engage an ASIC approved independent expert to, among other things:

  • review and test the compliance framework implemented by the Barclays entities following the reporting of breaches, to meet the relevant conditions of the ASIC licensing exemption; and
  • report any deficiencies and make recommendations on how to rectify those deficiencies to ensure effective and enduring compliance with the relevant conditions of the ASIC licensing exemption.

ASIC Commissioner Cathie Armour said, 'Foreign financial services providers relying on a class order licensing exemption must have effective and enduring measures to ensure compliance with the conditions set out in these instruments, including the fundamental obligations relating to disclosure and reporting.'

'Entities that fail to self-report a breach of their obligations to ASIC within the required time will be subject to automatic and indefinite exclusion from the licensing exemption provided by these instruments.'

Background

Disclosure condition

The ASIC class order licensing exemptions required the Barclays entities to provide written disclosure to all persons to whom financial services are provided in this jurisdiction (before the financial services are provided) containing prominent statements to the effect that:

  • they are exempt from the requirement to hold an Australian financial services licence under the Corporations Act 2001 in respect of the financial services; and
  • they are authorised and regulated by the relevant foreign regulatory authorities under foreign laws, which differ from Australian laws (Disclosure Condition).

Reporting condition

The ASIC class order licensing exemptions also required the Barclays entities to notify ASIC as soon as practicable and in any event within 15 business days after they became aware, or should reasonably have become aware of, the details of each significant investigation, enforcement or disciplinary action taken by any overseas regulatory authority against them in a foreign jurisdiction in relation to financial services provided in the foreign jurisdiction (Reporting Condition).

Breach reporting

Under the terms of ASIC class order licensing exemptions, if the Barclays entities were aware or ought reasonably have been aware of breaches of the Disclosure Condition or Reporting Condition they were required to notify ASIC within 15 business days.

Details of misconduct

BCI

In late 2013, BCI became aware of breaches of the Disclosure Condition. This breach was not at the time reported to ASIC and a remediation program was initiated in 2014. However this remediation program was ineffective resulting in continued non-compliance with the Disclosure Condition. In December 2015, BCI reported to ASIC breaches of the Disclosure Condition in relation to an estimated 827 wholesale Australian clients. BCI has indicated that it is not able to confirm from its internal systems and records whether the Disclosure Condition had been met and consequently is unable to demonstrate compliance with the Disclosure Condition since March 2004, when BCI first commenced reliance on the Class Order. In December 2015, BCI also reported to ASIC a breach of the Reporting Condition. This breach occurred across a period of three years with non-compliance first commencing from 30 June 2012 to 2 December 2015.

BCAL

In late 2013 BCAL became aware of breaches of the Disclosure Condition. These breaches were not at the time reported to ASIC and a remediation program was initiated in 2014. However this remediation program was ineffective resulting in continued non-compliance with the Disclosure Condition. In December 2015, BCAL reported to ASIC breaches of the Disclosure Condition in relation to an estimated 46 wholesale Australian clients. BCAL has indicated that it is not able to confirm from its internal systems and records whether the Disclosure Condition had been met and consequently it is unable to demonstrate compliance with the Disclosure Condition since March 2006, when BCAL first commenced reliance on the Class Order.

BCSL

In late 2013 BCSL became aware of breaches of the Disclosure Condition. These breaches were not at the time reported to ASIC. In February 2016, BCSL communicated to ASIC breaches of the Disclosure Condition in relation to an estimated 80 wholesale Australian clients. BCSL has indicated that it is not able to confirm from its internal systems and records whether the Disclosure Condition had been met prior to March 2014. Consequently it is unable to demonstrate compliance with the Disclosure Condition since March 2004 when BCSL first commenced reliance on the Class Order and up to, and including until March 2014 when a new deed of reliance was executed. BCSL confirmed it has complied with the Disclosure Condition since March 2014.

ASIC may make public:

  • the Barclays entities' compliance with independent expert reports and associated remedial plans; and
  • a summary of the contents of the independent expert reports and associated remedial plans.
Last updated: 23/03/2017 12:07