Business World

Sunday 17 December 2017

Goldman Sachs fined €21m by UK watchdog

Goldman Sachs complex of offices in Fleet Street. Photo: PA
Goldman Sachs complex of offices in Fleet Street. Photo: PA

Banking giant Goldman Sachs was fined £17.5m (€21m) by the UK's Financial Services Authority today - the second biggest penalty ever issued by the City watchdog.

The American investment group was punished for failing to tell the FSA that one of its traders was under investigation when he took up a job at the bank's London office in 2008.

Fabrice Tourre was at the centre of claims that the bank misled buyers of complex mortgage-backed investments in 2007, when the US housing market bubble was bursting.

The FSA began its investigation in April after the US Securities and Exchange Commission (SEC) charged Goldman over its Abacus debt product - part set up by Tourre.

The bank settled the fraud charge in mid-July by agreeing to pay $550m (€430m) - the largest fine in the SEC's history. Tourre denied any wrongdoing.

But in November 2008, while under investigation, Tourre transferred to London to become executive director of Goldman Sachs International (GSI) - which meant he became an FSA-approved person.

The FSA said Goldman Sachs was required to have systems in place to ensure information surrounding the SEC investigation was shared between its US and UK offices.

But the UK regulator said GSI did not deliberately withhold information, and as it co-operated fully and agreed to settle at an early stage, it qualified for a 30pc discount. Without the discount the fine would have been £25m.

The previous largest fine was the £33m penalty imposed on JP Morgan in June for failing to protect client money.

Margaret Cole, managing director of enforcement and financial crime, said: "We have repeatedly stressed the importance of firms self-reporting regulatory issues to the FSA in a timely way.

"GSI did not set out to hide anything, but its defective systems and controls meant that the level and quality of its communications with the FSA fell far below what we expect of an authorised firm."

Ms Cole said the fact that senior staff at GSI in London knew Tourre had been accused of serious violations of US securities law and did not consider regulatory implications was "disappointing".

She went on: "Had GSI complied with its UK obligations, the outcome for it would have been very different.

"This penalty should send a message - particularly to the senior management of large institutions - of the need to have their firm's UK reporting obligations at the forefront of their minds."

Commenting on today's fine, a Goldman Sachs spokesman said: "We are pleased the matter is resolved."

The investment bank said French-born Tourre remains a Goldman employee, but is currently on paid leave.

The 31-year-old joined the bank in New York in 2001 and worked his way up to become a vice-president on the structured product trading desk - where he developed Abacus, a debt product packed with toxic sub-prime mortgages.

The investment bank previously said an internal inquiry had cleared Tourre of any wrongdoing.

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