Barclays has set the gold standard for bad behaviour yet again. The UK bank has been fined £26 million ($44 million) by the Financial Conduct Authority for failing to prevent one of its traders from manipulating gold reference prices. Barclays now has the dubious distinction of being the first firm to be fined for failing to prevent the rigging of benchmarks for both Libor and the yellow metal.
The antiquated system for setting gold benchmark pricing always looked ripe for fixing. The banks involved - at the time, Barclays, Deutsche Bank, HSBC, Societe Generale and Scotiabank - declare how much of the yellow metal they have to buy or sell at a certain price. If demand outstrips supply (or vice versa) by more than 50 bars, or 620 kg, then the price is moved until that equilibrium is reached. Because of the lack of automation, false orders may be inputted to prevent a fixing at a certain price, but then withdrawn once the level changes. The rogue trader in question, Daniel Plunkett, did this to a textbook degree. If the gold reference price at the second daily fixing in London on the day in question was above $1,558.96 per troy ounce, Plunkett stood to lose $3.9 million. By inputting a false sell order to push down the price, he instead booked an eventual profit in his own trading book of $1.6 million.
As with Libor, such a straightforward legging over of a client suggests a rotten culture. Plunkett sent an email to colleagues explaining how incentivised he was to misbehave, but was not stopped. The failure in controls is all the more extraordinary given that the wrongdoing occurred on June 28, 2012: a day after Barclays was fined for Libor transgressions. Plunkett has been banned for life by the regulator, and Barclays Chief Executive Antony Jenkins is already a year into an attempt to radically reshape the bank's culture. But for his regime change to gain any traction, he has to make potential wrongdoers know their actions will be unacceptable internally as well as externally.
