SFO Was Warned Of Potential Destabilisation Over Barclays' Case

  • May 17, 2019 BST
  • Team Kalkine
SFO Was Warned Of Potential Destabilisation Over Barclays' Case

Regulators at the Bank of England had warned prosecutors at the UK's Serious Fraud Office in 2017 that a criminal charge against Barclays could present an existential threat to the lender and they risked triggering a systemic crisis if they went ahead with a criminal prosecution. According to sources, Sam Woods, head of the central bank's Prudential Regulation Authority (PRA) division and its deputy governor, told David Green, the then-director of the Serious Fraud Office, if charges were levelled against the bank over crisis-era payments to Qatar, there could be unpredictable consequences. Mr Woods believed the corporate criminal charges would lead to a small, but not insignificant, threat to Barclays' safety and soundness, and questioned whether it would be the public interest.

According to people familiar with the situation, the bank itself had made similar arguments to the PRA, though whether it was done before or after Mr Woods's interference. The intervention by the bank shows that regulators still worry about large banks being "too big to jail" as there is a lingering concern that a criminal prosecution could destabilise large lenders. This fear has in recent times set off a fierce public debate on both sides of the Atlantic as enforcement actions have long been hampered in the US and UK because of it.

This concern was shown by George Osborne, the UK chancellor, in 2012 as well when he wrote to America's central bank over the possible impact of criminal charges on British banks such as HSBC. However, in the past few years, the enforcement authority in the US has been active in pursuing criminal charges against many international banks, though no severe collateral damage was reported.

The SFO, which investigates and prosecutes crimes involving financial wrongdoing, went ahead and charged Barclays with fraud by misrepresentation and unlawful financial assistance in 2017, representing a rare example of a major bank facing UK criminal charges. The case was dismissed by a Crown Court judge last year, and the bank has not had to stand trial. Related proceedings were also pursued against ex-CEO John Varley, but a jury trying the case was discharged in April. Moreover, concerns by the central bank and Barclays did not materialise as the bank did not suffer any long-term damage to its liquidity or capital and its share price hardly changed.

A spokeswoman for the Bank of England said that the PRA has taken several steps since the financial crisis to ensure accountability of the senior management. She added that the organisation does not decide on bringing charges against banks and it is a matter for the Serious Fraud Office only.

Share Price Commentary

Daily Chart as at May-16-19, before the market closed (Source: Thomson Reuters) 

On 16th May 2019, at the time of writing (before the market closed, GMT 04:00 pm), BARC shares were trading at GBX 160.46, up by 0.27 per cent against its previous day closing price. Stock's 52 weeks High and Low is GBX 212.65/GBX 144.99. The company’s stock beta was 0.69, reflecting less volatility as compared to the benchmark index. Total outstanding market capitalisation was around £27.82 billion, with a dividend yield of 4.05%.

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