Barclays To Pay A $1m Fine For Repeatedly Botching Its Net Capital Calculations
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The Financial Industry Regulatory Authority (FINRA) recently slapped Barclays Capital Inc. with a $1 million fine for repeatedly botching its net capital calculations.
According to the regulator, the bank’s net capital calculations ended up being repeatedly wrong during the first meme coin craze, specifically in a period between January 2020 and April 2021.
The bank’s calculations were conducted extremely poorly, to the point of an overstatement that stretched from $44 million to $949 million. In other words, this is not a small issue involving minor errors.
The period in question has been quite notable in the crypto industry. It was at the time when the meme stock craze took place, led by the popular WallStreetBets subreddit when retail investors massively bought the stocks of GameStop and several other firms targeted by institutional investors. The institutions sought to short their stocks for profit, which threatened to financially ruin the targeted firms.
That was when amateur investors decided to get involved and pump the stocks’ prices, causing the institutions to withdraw. The move had far-reaching consequences, to the point where the GME stock still sits 30 times higher than before the incident.
What Went Wrong With Barclays?
As for Barclays, the company committed to buying securities outright, meaning that it took on the risk before finding buyers. The bank should have shaved those amounts off its net capital when it committed to going after securities, but instead, it treated many of these deals as low-stake offerings, where the risk remains lower because the company is only responsible for selling securities, not buying them.
FINRA quickly identified its errors during standard checkups, but it also discovered that this was not a one-time slip-up. This revealed deeper flaws in Barclays’ management of oversight and the way it conducts its procedures.
Barclays itself was seemingly unaware of the mess, and it only realized what had happened in April 2021. At that time, however, the damage was already done, and the company had 16 inaccurate reports submitted to the regulators.
While the $1 million fine might not seem like a major issue for a bank of this size, it also comes with a formal censure which will affect the firm’s reputation in the long term.
