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To resolve sales of unregistered securities, Barclays will pay $361 million.

In order to settle claims made by the Securities and Exchange Commission (SEC), Barclays PLC and Barclays Bank have agreed to pay $361 million. The bank allegedly failed to implement internal controls to monitor the sale of unregistered securities, which resulted in $17.7 billion in unregistered securities transactions over the course of almost three years.

The SEC said on Thursday that Barclays was given a $200 million civil penalty and that Barclays Bank must disgorge funds and pay more than $161 million in prejudgment interest to investors who were wronged. In order to comply with Section 5 of the Securities Act, which forbids the direct or indirect sale of securities unless a registration statement has been filed with the SEC and is in effect, Barclays agreed to cease and desist from further violations and implement remediations without admitting or disputing the agency's findings.


The year-end 2021 audited financial statements submitted to the SEC by both Barclays PLC and Barclays Bank were restated as a result of the alleged overissuances and internal control shortcomings.

According to Gurbir Grewal, head of the SEC's Division of Enforcement, "this case highlights why it is essential for firms like Barclays to have robust internal controls over their offers and sales of securities. While we acknowledge Barclays’s efforts to identify, disclose, and remediate this conduct, the control deficiencies and the scope of the conduct at issue here was simply staggering." 


In May 2017, Barclays PLC and Barclays Bank lost their SEC designation as well-known experienced issuers (WKSI). According to the SEC's ruling, Barclays Bank filed an updated registration statement in February 2018 to change its former WKSI shelf to a non-WKSI shelf for the roughly 18 months before its expiration.


"The 2018 shelf was declared effective on March 30, 2018, and included a specification of the maximum aggregate offering price of securities available to be offered or sold from the 2018 shelf," according to the order.


To replace the 2018 shelf, Barclays Bank registered a new non-WKSI shelf in June 2019. According to the SEC, the 2019 shelf went into effect on August 1, 2019, and it also specified the maximum aggregate offering price of securities that might be offered or sold from the 2019 shelf.


It still had securities available for new offers or sales while the 2018 shelf was getting close to its expiration date. Between the filing of the 2019 shelf and the date the 2019 shelf became effective, Barclays Bank estimated both the quantity of securities required for offers or sales from the 2018 shelf as well as the quantity of securities still on the 2018 shelf. However, the SEC discovered that Barclays Bank's failure to continuously monitor the sale of securities over this time rendered the carry-over estimates from the 2018 and 2019 shelves inaccurate.


Due to the outcome, Barclays Bank sold more securities than was required by the SEC to be registered for the 2018 shelf ($1.3 billion) and the 2019 shelf ($16.4 billion), respectively.


Barclays Bank self-reported the overissuances to the SEC in March and later made the information public. In May, Barclays PLC and Barclays Bank revealed they had begun rescission negotiations with the SEC to resolve the issue and restated their year-end 2021 audited financial statements.


According to the SEC, the bank cooperated with their investigation.


"The time for other firms employing similar shelf registrations to take notice and improve their internal compliance and control functions is now," according to Grewal.


The ruling states that immediately after discovering the overissuances, Barclays PLC and Barclays Bank "initiated a review of policies and procedures and internal controls relating to" the bank's SEC-registered shelves. "An assessment of end-to-end processes to identify any significant control gaps related to the offers and sales off of [Barclays Bank’s] commission-registered shelves and recommendations for enhancements designed to effect compliance with Section 5 of the Securities Act" were included in the review.


A request for comment was rejected by Barclays.


The SEC and Commodity Futures Trading Commission fined 11 financial organizations on Tuesday for failing to monitor, preserve, and keep track of employee electronic communications. Among them was the bank. Barclays consented to pay fines totaling $200 million to the two agencies.

By fLEXI tEAM

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