FCA and PRA fine Goldman Sachs International £96.6m for risk management failures

From: RegTech Analyst

Goldman Sachs International has been fined £96.6m by British regulators for its role in the 1Malaysia Development Berhad (1MDB) scandal.

The Financial Conduct Authority (FCA) and the Prudential Regulation Authority’s (PRA) fines are part of a $2.9bn globally coordinated resolution reached with The Goldman Sachs Group and its subsidiaries.

For some background, 1MDB is a Malaysian state-owned development company. It is has also at the centre of billion-dollar embezzlement allegations.

What Goldman Sachs International is accused of having done is to have underwritten, purchased and arranged three bond transactions for 1MDB in 2012 and 2013 that raised a total of $6.5bn for 1MDB. The 1MDB transactions were approved by global Goldman Sachs Group committees that Goldman Sachs International participated in, and were booked to the company

The 1MDB transactions involved clients and counterparties in jurisdictions with higher financial crime risk. Goldman Sachs International was also aware of the risk of involvement of a third party that Goldman Sachs International had serious concerns about.

The regulators argued that GSI failed to assess and manage risk to the standard that was required given the high risk profile of the 1MDB transactions, and failed to assess risk factors on a sufficiently holistic basis. GSI also failed to address allegations of bribery in 2013 and failed to manage allegations of misconduct in connection with 1MDB in 2015.

“Firms have a crucial role to play in tackling financial crime, and in helping to maintain the integrity of the financial system,” said Mark Steward, executive director of enforcement and market oversight at the FCA. “GSI’s failure to take appropriate action in this case shows that it did not take this responsibility seriously. When confronted with allegations of bribery and staff misconduct, the firm’s mishandling allowed severe misconduct to go unaddressed. There is no amnesty for firms that tackle financial crime poorly, and the size of GSI’s fine reflects that.’

Sam Woods, deputy governor for prudential regulation and CEO of the PRA, added, “Failure to manage financial crime risk can have a significant adverse impact on a firm’s safety and soundness.  We expect firms to manage risk, including financial crime risk, prudently and holistically and for allegations of bribery and misconduct to be taken very seriously. The seriousness of the case and of GSI’s failures in connection with 1MDB are reflected in the size of the PRA’s fine.”

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