Release Date: 22nd October 2020
To access the original FCA document, click here.
Summary
The Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) have fined Goldman Sachs International (GSI) a total of £96.6 million for risk management failures connected to 1Malaysia Development Berhad (1MDB). This fine is part of a US$2.9 billion globally coordinated resolution with the Goldman Sachs Group Inc. (GSG) and its subsidiaries.
1MDB is a Malaysian state-owned development company involved in billion-dollar embezzlement allegations. GSI underwrote, purchased, and arranged three bond transactions for 1MDB in 2012 and 2013, raising a total of US$6.5 billion. These transactions were high-risk due to the jurisdictions and third-party involvements, which GSI failed to manage properly despite repeated warnings from the FCA.
Mark Steward, FCA Executive Director of Enforcement and Market Oversight, emphasised the importance of firms taking responsibility for financial crime risk management, noting that GSI’s failures allowed severe misconduct to go unaddressed. Sam Woods, Deputy Governor for Prudential Regulation and CEO of the PRA, highlighted the significant adverse impact of failing to manage financial crime risk on a firm’s safety and soundness.
The investigation revealed that GSI breached multiple FCA and PRA principles and rules by failing to:
- Assess risk factors with due skill, care, and diligence on a holistic basis.
- Manage the involvement of a concerning third party in the bond transactions.
- Address allegations of bribery and misconduct connected to 1MDB.
- Adequately record the risk assessment and management associated with the transactions.
The US$2.9 billion global resolution involved several international regulatory bodies, including the US Department of Justice and the Monetary Authority of Singapore. Additionally, a separate US$3.9 billion settlement was reached between GSG and the Government of Malaysia in August 2020.
GSI’s agreement to resolve the case early with the FCA and PRA earned it a 30% discount on the total fine, which would have otherwise been £69,012,000 (US$90,000,000) each by the FCA and PRA.
Key Takeaways:
- Holistic Risk Management: Firms must assess and manage risk factors comprehensively, especially in high-risk transactions.
- Address Allegations Promptly: Allegations of misconduct and bribery must be managed diligently and transparently.
- Adequate Record-Keeping: Proper documentation of risk assessments and management is crucial.
- Global Coordination: Regulatory compliance involves coordination with multiple international bodies to ensure comprehensive oversight.
In conclusion, the FCA and PRA’s fines on GSI highlight the critical importance of robust risk management and the need for firms to take their financial crime responsibilities seriously to maintain the integrity of the financial system.
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