FSA had warned Barclays of aggressive behaviour

REGULATORS warned Barclays bank about its “aggressive” interpretation of market rules just four months before it was hit with a £290m fine for abusing the Libor interest rate, it was revealed yesterday.

Lord Turner, the head of the Financial Services Authority (FSA), wrote to Barclays chairman Marcus Agius on 10 April this year to spell out “concerns about the cumulative impression created by a pattern of behaviour over the last few years” at the bank.

Yesterday the FSA released selected correspondence between itself and Barclays in which the regulator highlights a series of concerns about the bank’s restructuring of bad debts, financial reporting techniques and corporate tax arrangements.

In one letter Turner says the FSA has been left with the impression that “Barclays has a tendency continually to seek advantage from complex structures or favourable regulatory interpretations”.

While Bob Diamond had told the Treasury select committee that regulators were “happy” with Barclays, Agius yesterday admitted to the same group of MPs that relations with the FSA were “strained”.

Parts of the letters between the regulator and the bank were redacted, and they appeared to be part of a longer chain of correspondence.

Defending the bank, Agius told the Treasury select committee yesterday: “I don’t wish to be pedantic but I don’t regard this as damning. I regard this as a firm letter from our regulator.”

Despite this he said that the correspondence released by the banking watchdog was a “very important letter” and reassured MPs it was “one we took very seriously”.

From Lord Turner, chairman of FSA, to Marcus Agius, Barclays chairman 10 April 2012:

Barclays often seems to be seeking to gain advantage through the use of complex structures, or through arguing for regulatory approaches which are at the aggressive end of interpretation of the relevant rules and regulations.

Our team felt that Barclays continued to argue for capital optimisation in a way which inefficiently used up our resource and goodwill.

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The cumulative effect … has been to leave us with an impression that Barclays has a tendency continually to seek advantage from complex structures or favourable regulatory interpretations.

From Marcus Agius to Lord Turner, 18 April 2012

The Board and I took note of Andrew Bailey’s comments in our February meeting and, while he specifically excluded Bob Diamond and Chris Lucas from his comments, it was clear that “tone from the top” is one of the FSA’s concerns.

FSA concerns about Barclays governance

Protium deal
In 2009 Barclays transferred $12.3bn (£7.7bn) of toxic assets to an off-balance sheet Cayman Islands vehicle named Protium. This raised FSA concerns about accounting practices.

Banking stress test
Barclays gave FSA officials the impression that it was trying to “spin” the bank’s capital position in order to pass the crucial European Banking Authority stress test.

CVA positions
Barclays is accused of choosing valuations “clearly at the aggressive end of the acceptable spectrum” for its monoline CVA [Credit Valuation Adjustment] positions from 2009.