The Importance of Monitoring in Employee Trading Compliance

Lessons from Barclays Capital Inc. 

On April 12, 2024, the financial industry was reminded of the critical importance of strong compliance monitoring when FINRA announced that Barclays Capital Inc. had been censured and fined $700,000. This penalty was issued because of the firm’s failure to adequately supervise the trading activities of its research analysts, specifically regarding their managed accounts.  

The Breakdown of Compliance at Barclays 

At the core of the issue was Barclays’ lack of monitoring its research analysts’ personal account dealing activities in managed accounts. Their personal accounts involved trades in securities that the analysts themselves covered, called ‘covered securities.’ The firm’s protocols required external account managers to confirm adherence to trading restrictions in covered securities. Unfortunately, the system was inadequate and lacked rigorous documentation that failed to verify whether these external managers complied with the firm’s policies. 

The Pitfalls of Inadequate Surveillance 

Due to multiple oversights, several violations occurred: 

• Unmonitored Trading: Analysts’ holdings in covered securities when unchecked, leading to undetected conflicts of interest. 
• Unenforced Restrictions: Barclays’ Written Supervisory Procedures (WSPs) prohibited analysts from trading securities they covered. The lack of a strong enforcement mechanism meant these restrictions were not consistently followed. 
• Non-Disclosure: The failed monitoring system led to Barclays not disclosing analyst trading securities in their managed accounts. 

The Timeline and Impact 

These compliance lapses were not momentary slips, but occurred over a large period, from January 2016 to August 2019. During this time, at least 99 research reports did not disclose relevant analyst holdings, and in some cases, analysts’ trading contradicted their published recommendations. 

Key Takeaways 

This case highlights the importance of having a strong governance framework where compliance can implement and validate both detective and preventive controls. It highlights the risk of relying on informal, undocumented processes that lack verification mechanisms. 

For firms looking to enhance their compliance framework, consider an integrated platform such as StarCompliance’s (Star) electronic broker feed solution. Star’s platform includes comprehensive feeds from both self-directed and managed accounts, providing efficient management, classification, and monitoring of employee trading activities. This helps ensure regulatory compliance and keeps the integrity of financial data and reporting. 

In conclusion, the Barclays case serves as a cautionary reminder that firms need to elevate vigilance, documentation, and adherence to compliance practices in the financial industry. By deploying advanced technological solutions, firms can protect themselves, their employees, as well as their reputation from similar compliance failure, thereby upholding the trust given to them by their clients and the industry. 

Learn more about Star’s 25 years of excellence in providing world-class employee regulatory compliance solutions by saving your seat at Star’s Product Spotlight: Employee Conflicts of Interest webinar.

Steve Brown

As Head of Business Development, Steve Brown is responsible for helping drive growth at Star, with a focus on go-to-market planning, data and vendor partnerships, channel sales, new markets, and mergers and acquisitions. Steve joined Star in April 2021, and brings with him 25 years of experience advising financial firms on regulatory compliance. Prior to joining Star, Steve was Director of Broker-Dealer Client Services at Compliance Risk Concepts LLC, a senior director at PwC, and Head of Fixed Income and Capital Markets Compliance at U.S. Bancorp Investments, Inc. Steve began his career at Wachovia, where he was Head of Global Investment Banking Compliance and Control Group, and is considered a pioneer in the control room space—having established the bank’s first formal control room function.

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