FINAL NOTICE

1.
ACTION

1.1.
For the reasons given in this Decision Notice, the Authority hereby imposes on

Barclays a financial penalty of £783,800 pursuant to section 206 of the Act.

1.2.
Barclays agreed to resolve this matter and qualified for a 30% (stage 1) discount

under the Authority’s executive settlement procedures. Were it not for this

discount, the Authority would have imposed a financial penalty of £1,119,767 on

Barclays.

1.3.
Barclays has agreed to make an ex gratia payment of £10,076,943.75 to be

distributed amongst Premier FX’s customers pursuant to a plan agreed with the

Authority.

2.
SUMMARY OF REASONS

2.1.
The Authority considers that, in the oversight and monitoring of its business

relationship with Premier FX, Barclays failed to conduct its business with due skill,

care and diligence and thereby breached Principle 2.

2.2.
Premier FX was an authorised payment institution (“API”) which provided foreign

exchange and money remittance services. Following the death of its sole

shareholder and director, Mr Peter Rexstrew, in June 2018, serious shortfalls in

monies held by Premier FX on behalf of its customers were identified. As a result,

Premier FX was put into administration and then liquidation.

2.3.
The Authority investigated Premier FX and determined that, at Mr Rexstrew’s

instigation, in addition to payment services for which it was authorised, the

evidence indicated that Premier FX offered its customers services, including the

secure holding of monies and attractive exchange rate deals. These activities may

have involved deposit-taking and dealing in investments, which Premier FX was not

permitted to conduct. The Authority determined that Premier FX did not hold

customers’ funds securely but used them for other purposes, meaning that they

were not available when Premier FX was liquidated. The activities uncovered by the

Authority were not known to Barclays during the relevant period.

2.4.
As a result, 167 customers of Premier FX lost a total of £10,076,943.75.

2.5.
The nature of their business means that banks are at particular risk of being used

by their clients to facilitate financial crime. As a result, they are required to maintain

policies and procedures which are sufficient for countering the financial crime risks

to which they are exposed, which includes the risk of fraud by their own customers

as well as by third parties. In relation to a corporate client, these policies should

include measures to ensure that the bank understands the nature and risks of the

business of its client and monitors its activities to ensure that they are consistent

with the bank’s understanding of its business. The necessary intensity and

frequency of these measures will depend upon the particular risks presented by the

client. As a result, banks should have a clear framework for assessing the risks of

their clients.

2.6.
Some clients, such as those which handle money on behalf of other people, may

present particularly high risks and, as a result, the necessary measures may be

comparatively stringent. Banks should have clear policies for how they monitor the

activities of such high-risk clients. However, such policies will only be effective if

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they are implemented in a manner which enables the bank to understand the

client’s business and to make further enquiry when the client’s actual business

activity does not appear to match that understanding.

2.7.
From 2006, Premier FX had a banking relationship with Barclays. Barclays provided

Premier FX with banking and foreign exchange services. Barclays charged Premier

FX fees and benefited from the differences between the rates at which Barclays

could exchange currency and those it offered to Premier FX. As a result, Barclays

earned revenue from its relationship with Premier FX. Barclays was Premier FX’s

sole banker in the UK. Barclays categorised Premier FX as a money service business

(“MSB”).

2.8.
Throughout the relevant period, Barclays assessed MSBs to be high-risk clients.

Barclays understood that, due to the nature of the business that MSBs conduct and

in the provision of payment services to their own underlying clients, MSBs are

susceptible to increased money laundering risks and pose enhanced risk to Barclays

in banking the sector. As such, to understand and hence mitigate the risks they

presented, Barclays conducted periodic AML/EDD reviews of its MSB customers

which required them (among other measures) to meet minimum standards.

Barclays’ policies required it to verify that these standards continued to be met on

an ongoing basis, in particular through reviews which were to be conducted at least

annually. These minimum standards included a requirement that the MSBs

operated appropriate systems and controls including, from 2013, a specific

requirement that the MSBs maintained robust internal controls to segregate client

funds from company funds.

2.9.
However, taking the below findings together, the Authority considers that Barclays

did not act with due skill, care and diligence in carrying out its ongoing monitoring

of Premier FX during the relevant period. In particular:

(1)
Whilst Barclays conducted nine AML/EDD reviews through the relevant

period, Barclays failed to finalise in a timely manner reviews of Premier FX

in two calendar years, in breach of its own policies. This was due to delays

in Premier FX providing Barclays with the requisite independent compliance

reports, yet Barclays did not consider whether these delays should have

prompted further questions to Premier FX’s management.

(2)
Much of the information contained in the AML/EDD review reports prepared

for Premier FX by Barclays was repeated and included information cut and

pasted from previous reports, which included errors that Barclays did not

identify and rectify.

(3)
Some of the records of the AML/EDD reviews did not accurately reflect the

correct number of bank accounts operated by Premier FX. By the time of the

final review in April 2018, the EDD report under-reported the number of

accounts by 25.

(4)
In conducting EDD reviews in 2015, 2016 and 2018, Barclays did not

adequately challenge the information it was given by Mr Rexstrew regarding

his plans for the business or pay sufficient attention to the purpose of the

accounts Premier FX operated at Barclays.

(5)
Barclays knew that Premier FX was heavily reliant on Mr Rexstrew yet failed

to consider whether this presented risks, particularly in light of the rapid

growth of Premier FX’s business during the relevant period.

(6)
At Premier FX’s request, Barclays opened several accounts for Premier FX

on behalf of other APIs owned and operated by Mr Rexstrew, specifically

Global Currency Service and Alacrity Payments. These “re” accounts were

opened in Premier FX’s name and operated by Premier FX on behalf of these

associated companies. In opening these accounts for Premier FX, Barclays

failed to consider or confirm with Premier FX how Premier FX’s use of these

“re” accounts affected the conduct of its business.

(7)
Premier FX opened three “re” accounts on behalf of Alacrity Payments in

January 2014. Mr Rexstrew used the US dollar “re” account from the day

after it was opened to receive the proceeds of Premier FX customers’ funds

and continued to use this account until January 2017. During this time, Mr

Rexstrew provided various information in relation to Alacrity Payments,

including initially that it had not begun trading and later (in April 2016) that

it was being sold. Barclays did not make any enquiries to establish the

ongoing purpose of Mr Rexstrew’s use of these “re” accounts after it had

been told that Alacrity Payments had been sold by April 2016.

(8)
From May 2013, the MSB Minimum Standards were introduced as one

element of Barclays’ oversight of MSB clients. The Minimum Standards

included a checklist, which required the reviewer to confirm (by yes or no)

that an MSB met certain threshold criteria. One such criterion was to confirm

that the MSB was appropriately authorised or registered. Another was to

confirm that the MSB had “robust internal controls to segregate client funds

from company funds”. Despite this being a minimum requirement from May

2013, Barclays did not complete a review that included confirmation this

criterion was met until January 2015.

(9)
Barclays first performed this assessment in relation to the review which

commenced in 2014, but which was not completed until January 2015 due

to delays in receiving Premier FX’s independent compliance report. In

practice, the reviewer considered this criterion to be fulfilled if the MSB held

and operated currency accounts separate from the MSB’s ‘office’ accounts

and one or more safeguarding accounts without any further enquiries being

made. Barclays did not therefore properly consider the number or type of

accounts Premier FX held with it. Four of Premier FX’s 74 bank accounts

were designated as client accounts for safeguarding purposes: two pound

sterling accounts (one of which was closed in 2011), a Moroccan dirhams

account (which was closed in 2014) and a Kenyan shillings account. In

addition, in its AML/EDD reviews, Barclays did not ask questions regarding

Premier FX’s use of its office account.

(10)
Although Barclays received information from Mr Rexstrew regarding his

plans for the business and the purpose of the accounts Premier FX held at

Barclays, including the Global Currency Service and Alacrity Payments “re”

accounts, it did not seek further confirmation about how those accounts

operated relative to its understanding of the business of Premier FX.

(11)
In April 2016, Barclays assessed that Premier FX was failing to meet

Barclays’ minimum threshold criterion for MSBs to have a minimum level of

net tangible assets (“NTA”). Premier FX persuaded Barclays to keep the

relationship open on the basis that the proceeds from the sale of Alacrity

Payments and its expected profit for 2016 would be reinvested in Premier

FX. However, Mr Rexstrew never sold Alacrity Payments and it was dissolved

in 2017. Barclays satisfied itself that Premier FX’s capital position had

improved on the basis of its unaudited accounts for the year ending 2015

provided by Mr Rexstrew. These could not have included monies from the

sale of Alacrity Payments since they covered a period prior to the alleged

sale, yet Barclays failed to consider this.

2.10. The Authority considers that, taken together, these findings demonstrate Barclays’

oversight and monitoring of Premier FX throughout the relevant period was

inadequate in that it failed to ensure it made appropriate further enquiries to ensure

that Premier FX’s actual business activity aligned with Barclays’ expectation of its

business activity based on its understanding of Premier FX and failed to identify

that Premier FX’s internal controls were deficient. This constituted a failure by

Barclays to conduct its business with due skill, care and diligence in breach of

Principle 2.

2.11. The Authority therefore imposes on Barclays a financial penalty of £783,800. This

action supports the Authority’s statutory objective of securing an appropriate

degree of protection for consumers.

3.
DEFINITIONS

3.1.
The definitions below are used in this Notice:

“the Act” means the Financial Services and Markets Act 2000;

“Alacrity Payments” means Alacrity Payments Limited (FRN 598643), an agent of

Premier FX;

“AML” means anti-money laundering;

“API” means authorised payment institution, a firm authorised by the Authority to

provide payment services under the PSRs 2009 or the PSRs 2017;

“the Authority” means the body corporate previously known as the Financial

Services Authority and renamed on 1 April 2013 as the Financial Conduct Authority;

“Barclays” means Barclays Bank Plc (FRN 122702);

“the Client Account (GBP)” means the pounds sterling bank account called “Premier

FX Limited Clients Account” with an account number ending in 9034 maintained by

Premier FX at Barclays;

“customer turnover” means a term used by Barclays to describe the activity

occurring across a customer’s accounts held with Barclays, including the value of

any foreign exchange trades settling across a customer’s accounts and any

inbound/outbound payment activity;

“DEPP” means the Decision Procedure and Penalties Manual, part of the Authority’s

Handbook of rules and guidance;

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“Financial History Report” means a Barclays’ system-generated report that provided

a summary of the customer turnover on an account or group of accounts over the

prior 12-month period;

“the FMRF” means Barclays’ FIG (Financial Institutions Group) MSB Review Forum;

“the FSCS” means the Financial Services Compensation Scheme;

“Global Currency Service” means Global Currency Service Limited (in liquidation)

(FRN 535671);

“the Kenyan Shillings Account” means the Kenyan shillings bank account with an

account number ending in 8411 maintained by Premier FX at Barclays;

“KYC” means “Know Your Customer”;

“the MLRs” means the Money Laundering Regulations 2007 and their replacement

the Money Laundering, Terrorist Financing and Transfer of Funds (Information on

the Payer) Regulations 2017;

“MSB” means money service business, a term used by Barclays to refer to a

particular client segment, of which Premier FX was part;

“NTA” means net tangible assets, i.e. the total assets of a customer’s business less

all liabilities and intangible assets, used by Barclays as a metric to assess the size

and capital adequacy of a customer’s business;

“the Office Account (GBP)” means the pounds sterling bank account called “Premier

FX Limited GBP Office Account” with an account number ending in 5191 maintained

by Premier FX at Barclays;

“Premier FX” means Premier FX Limited (in liquidation) (FRN 530712);

“the PSRs 2009” means the Payment Services Regulations 2009;

“the PSRs 2017” means the Payment Services Regulations 2017;

“the PSRs” means the PSRs 2009 and the PSRs 2017;

“relevant funds” means funds falling within the scope of regulation 19(1) of the

PSRs 2009 and, subsequently, regulation 23(1) of the PSRs 2017;

“the relevant period” means 25 February 2011 to 13 August 2018;

“SYSC” means the part of the Authority’s Handbook of rules and guidance which

has the title Senior Management Arrangements, Systems and Controls;

“the Tribunal” means the Upper Tribunal (Tax and Chancery Chamber); and

“the US Dollar Account” means the US Dollar Account called “Premier FX Ltd” with

an account number ending in 2999 maintained by Premier FX at Barclays.

4.
FACTS AND MATTERS

Background to Barclays

4.1.
Barclays has been authorised by the Authority to provide regulated products and

services, including banking services, since 1 December 2001.

4.2.
Prior to 1 April 2018, Barclays offered products and services across the sectors of

personal, corporate and investment banking, credit cards and wealth management.

On 1 April 2018, Barclays restructured its operations to comply with the UK’s ring-

fencing legislation, which required each UK bank to separate its retail banking

activities from the rest of its business. Barclays Bank UK PLC now owns and

operates the retail parts of the business. Barclays retained its Corporate Banking

Division.

Background to Premier FX

4.3.
Premier FX was incorporated as a company in England and Wales on 4 April 2006.

Mr Rexstrew was the sole shareholder of Premier FX. Between 1 November 2009

and 17 June 2018, he was also its sole director.

4.4.
Premier FX provided corporate and retail customers with foreign exchange and

money remittance services. Although Premier FX offered services in respect of

numerous currencies, its clients were frequently British citizens who either lived in

Portugal or Spain, or who lived in the UK and had holiday homes in Portugal or

Spain. These customers used Premier FX, for example, to transfer funds from their

UK bank accounts to Portugal or Spain to fund property purchases and living costs,

as well as to transfer to the UK the proceeds of the sale of Portuguese or Spanish

properties. The nature of Premier FX’s business meant that it made and received

payments, often in significant sums, numerous times per day. Premier FX did not

handle cash, meaning that all its payment transactions were conducted

electronically.

4.5.
The size of its business meant that Premier FX was not required to have its accounts

independently audited and its shareholder (Mr Rexstrew) did not require it to do

so. As a result, its annual accounts were prepared based on information prepared

by its director (i.e. Mr Rexstrew). The accounts were publicly available.

Premier FX’s obligations

4.6.
Premier FX was authorised by the Authority as an API and given permission to carry

on payment services activities on 25 February 2011 after it satisfied the Authority

that it had provided sufficient information required for authorisation at Schedule 2

of the PSRs 2009 (including, amongst other things, that it had taken adequate

measures for the purpose of safeguarding payment service users’ funds in

accordance with the PSRs 2009). Premier FX was subsequently authorised by the

Authority as an API under the PSRs 2017 with effect from 23 May 2018. The PSRs

2017 included conditions for authorisation that were substantially similar to those

under the PSRs 2009.

4.7.
The only payment service that Premier FX was permitted to provide during the

relevant period was money remittance, i.e. the transmission of money from a payer

to a payee without any payment accounts being created either in the name of the

payer or the payee. It was not permitted to accept a customer’s funds unless the

customer also gave a payment order for the funds to be transferred onwards,

whether immediately or on a future date. Premier FX was not permitted under the

PSRs to retain customers’ funds indefinitely.

4.8.
Premier FX was not authorised to accept deposits nor to deal in investments, which

are regulated activities under the Act. Providing such activities without

authorisation under the Act is a criminal offence.

4.9.
As an API, Premier FX was subject to requirements under the PSRs in respect of

the maintenance of capital, robust governance and internal controls. It was also

subject to the requirements of the MLRs.

4.10. In addition, Premier FX was required under the PSRs to safeguard “relevant funds”,

namely sums received from, or for the benefit of, a payment service user for the

execution of a payment transaction. It claimed to the Authority and to Barclays

that it did so using the “segregation method” (see paragraph 4.127 below). This

meant that it was required to:

(1)
segregate relevant funds (i.e. keep them separate from all other funds it

held) as soon as those funds were received;

(2)
if the relevant funds were still held at the end of the business day following

the day on which they were received, deposit the funds in a separate

account with an authorised credit institution (e.g. a bank);

(3)
ensure that the separate account was designated (i.e. named in such a way

as to show that it was an account which was held for the purpose of

safeguarding relevant funds);

(4)
ensure that the separate account was only used for holding relevant funds;

(5)
ensure that no other party (including the bank holding the account) had any

interest in, or right over the relevant funds;

(6)
keep records of relevant funds; and

(7)
maintain organisational arrangements sufficient to minimise the risk of the

loss or diminution of relevant funds through fraud, misuse, negligence or

poor administration.

4.11. Not all the funds Premier FX received from its customers would have constituted

relevant funds. For instance, funds transferred to Premier FX by a customer for the

purpose of conducting spot FX transactions without remittance would not have

constituted relevant funds. Accordingly, such funds would not have required

safeguarding by Premier FX. Similarly, not all of the relevant funds held by Premier

FX were required to be deposited into a safeguarded account. Relevant funds

remitted onwards by Premier FX in accordance with the customer’s instruction

before the end of the business day following the date of receipt by Premier FX could

instead be held in a currency account segregated from non-relevant funds. The

PSRs do not require segregated currency accounts to be designated as safeguarded

accounts or that these accounts should be protected against set-off.

Authority’s investigation of Premier FX

4.12. Premier FX went into administration on 13 August 2018 in the circumstances

described in paragraphs 4.25 to 4.27 below. Thereafter, the Authority conducted

an investigation into its business. The Authority found that Mr Rexstrew controlled

all aspects of Premier FX’s operations, including the reconciliation of accounts and

effecting transactions between and from Premier FX’s bank accounts at Barclays

(95% of which he dealt with personally). In addition, the Authority uncovered

failings that were not known to Barclays during the relevant period (as set out at

paragraphs 4.13 to 4.23 below).

4.13. The Authority found that, in addition to its foreign exchange and money remittance

services, Premier FX told customers that it was permitted to create accounts and

to hold their funds indefinitely without the need for an onward payment order.

Premier FX told its customers that their funds would be securely held in segregated

client accounts separately from all other funds and that their funds would be

protected by the FSCS. None of these matters were true and the Authority found

that Premier FX had seriously misled its customers. As a result of these

misrepresentations, many customers paid their funds to Premier FX (in some cases

hundreds of thousands of pounds sterling, euros or US dollars) to hold without a

payment order for onward transfer on the basis that the funds would be repayable

on demand.

4.14. Premier FX specifically marketed to customers the fact that their monies would be

held at Barclays as an indicator of their security in a document entitled “Regulation

& Client Account Security”, which stated: “All funds transferred via or deposited

with Premier FX are held in client accounts at Barclays Bank in London. There are

strict rules regarding the security of client funds held in this way, and this document

highlights the key factors to consider”.

4.15. Some customers were offered and were paid interest by Premier FX. Other

customers were offered a “worst case exchange rate deal” in which an exchange

rate was fixed at the rate on the day that the customer’s funds were received by

Premier FX but no future date for exchange and remittance was agreed. Whenever

the customer subsequently decided to instruct Premier FX to remit the funds,

Premier FX would exchange the funds at the higher of the spot rate on that day

and the agreed fixed rate. Accordingly, the customer would benefit if the exchange

rate had improved since the date they transferred their funds to Premier FX and

would also benefit if the exchange rate had worsened since that date as the fixed

rate acted as a floor. Several customers would often pay in a lump sum and

withdraw smaller amounts on a monthly basis.

4.16. It is unclear how Premier FX expected to make a sufficient profit from foreign

exchange or money remittance to offer its customers interest payments and “worst

case exchange rate” deals. The Authority concluded that it is likely that Mr Rexstrew

offered these deals to customers in order to entice them to pay their funds into

Premier FX. The Authority concluded that, once those funds arrived in Premier FX’s

accounts, they were likely used to settle other customers’ payments. Mr Rexstrew

went to great lengths to encourage customers to keep their funds in Premier FX,

telling one customer on the day before he died that he was prepared to guarantee

their funds over the FSCS limit.

4.17. Mr Rexstrew also used his personal bank accounts to conduct Premier FX’s

business. The Authority has identified many instances of Premier FX customers

paying funds directly into his personal bank accounts in the UK, Portugal and Spain.

In addition, approximately €260,000 in cash was deposited in one of his accounts

in Portugal, as well as a number of cheques totalling approximately €890,000

(including one cheque for €278,000). It is not clear why he was receiving this

significant amount of cash and cheques into his personal bank accounts nor

whether these were payments from Premier FX customers. Further, while some of

these funds were transferred to Premier FX, it does not appear that all of these

funds were transferred into Premier FX’s accounts.

4.18. The Authority has found no evidence to suggest that Barclays was aware (or should

have been aware) of the statements or offers made by Premier FX to its customers

described in paragraphs 4.13 and 4.15 above.

4.19. Although customers were told that their funds would be held securely, Premier FX

failed to retain those funds. The Authority reviewed the movement of funds

belonging to a sample of customers who each transferred a significant amount of

euros into one of Premier FX’s accounts for Premier FX to hold without a payment

order for onward transfer. Each customer was told by Premier FX that their funds

would be held in secure, segregated client accounts. However, the Authority’s

investigation found that none of the accounts which initially received their funds

were designated as client accounts. On the day the customers paid their funds to

Premier FX, the funds became indistinguishable from the funds of Premier FX. An

amount equivalent to, or higher than, their payments was then transferred from

the receiving account into another account of the same currency, either on the day

on which they paid the funds to Premier FX, or a few days later. At this point it

becomes difficult to trace the funds further. It appears from the account

transactions that Premier FX used the balance in the second account to make

payments to or on behalf of other customers. The Authority ultimately found that

there is no clear explanation for how or why Premier FX moved funds between the

bank accounts.

4.20. Although the Authority was unable to identify definitively why Mr Rexstrew

operated Premier FX’s accounts in this way, it concluded that it was likely that

Premier FX had been loss-making for some years and that he needed new funds to

meet existing debts or promises to customers. Premier FX’s true financial position

became evident within weeks of his death.

4.21. On 25 February 2021, the Authority published a Final Notice publicly censuring

Premier FX. The Authority concluded that Premier FX had failed to comply with its

requirements to safeguard relevant funds and to use payment accounts

appropriately.

4.22. The Authority also concluded that the evidence indicated that, in the course of its

business, Premier FX may have been carrying on the regulated activities of deposit-

taking and dealing in investments as principal without permission. These activities

constitute criminal offences.

4.23. The Authority considers that it is likely that failing to retain customer monies as

promised, and instead using them for other purposes, involved the commission of

criminal offences by Mr Rexstrew.

4.24. As noted above, the Authority has found no evidence to suggest that Barclays was

aware (or should have been aware) that certain of Premier FX’s activities may have

constituted a criminal offence.

4.25. On 15 June 2018, Mr Rexstrew underwent a heart bypass operation in a Lisbon

hospital and died a few hours later the next day. Over the course of the following

weeks, Premier FX staff were contacted by customers asking for confirmation of

the balance of their funds held by Premier FX and, in some cases, requesting

interest payments. Premier FX staff made genuine attempts to respond to these

customers’ queries. When an increasing number of customers came forward asking

for confirmation of the balance of their funds held by Premier FX, the new directors

of Premier FX realised that Premier FX held insufficient funds in its accounts to

cover all of these claims.

4.26. On 27 July 2018, having sought insolvency and legal advice, the new directors

announced on Premier FX’s website their decision to suspend Premier FX’s business,

to put Premier FX into liquidation and, in the meantime, not to transact any new

business or process any customer payments. The day before this announcement,

the new directors notified Barclays that they had decided to cease trading and, as

Premier FX continued to receive funds from customers, requested that Barclays

reject any incoming funds.

4.27. On 13 August 2018, on the application of the Authority, the High Court appointed

administrators on the basis that Premier FX was unable to pay its debts as they fell

due and was cashflow insolvent. At a Creditors Meeting on 18 October 2018, the

creditors voted to appoint liquidators. The liquidators took office on 7 December

2018.

Customer losses

4.28. On 24 September 2021, the liquidators sent a Notice of Distribution to Premier FX’s

creditors in accordance with a distribution plan approved by the High Court on 19

May 2021. The Notice of Distribution stated that the liquidators had identified

assets held by Premier FX with a value of £1,897,705.78 and had accepted claims

with a total value of £11,173,639.25. Following the payment of the administrators’

and liquidators’ costs, the total sum to be distributed to creditors whose claims

were accepted was £1,096,695.50. The rate of distribution was 9.815p in the

pound.

4.29. Accordingly, Premier FX’s customers suffered losses totalling £10,076,943.75.

Obligations of banks relating to API customers

4.30. All authorised firms are required to maintain adequate policies and procedures

sufficient for countering the risk that the firm might be used to further financial

crime, which includes the risk of fraud by their own customers as well as by third

parties. These must include systems and controls that are comprehensive and

proportionate to the nature, scale and complexity of the firm’s activities.

4.31. The nature of its business means that a bank is particularly susceptible to being

used for the purposes of financial crime including money laundering. Banks are

subject to specific requirements under the MLRs, including customer due diligence

and ongoing monitoring of their clients.

4.32. Banks providing services to corporate clients should ascertain the nature of the

client’s business and how it will use the bank’s services in the course of that

business, taking reasonable steps, on a risk-sensitive basis, including obtaining

evidence or verification where appropriate, to satisfy itself that the client’s

operations are lawful and to mitigate any risks that the bank may be involved in

criminality. Thereafter, the bank should monitor, to an extent and at a frequency

informed by the risks presented by the client, the client’s use of its services to

ensure that they remain consistent with its initial assessment or, if there are

changes, account is taken of them and/or a fresh assessment undertaken.

4.33. The risk of a corporate client that handles monies on behalf of other people being

involved in financial crime is particularly acute. This is because other people may

attempt to use such a firm to launder money or because weak internal controls

may allow monies to be misappropriated without any obvious sign of the

misappropriation. The risk is even greater in respect of payments firms whose

business models depend on the frequent payment into and out of their bank

accounts of large sums, meaning that banks’ transaction monitoring systems may

not be effective in identifying illegitimate transactions (because they may be

indistinguishable from the many legitimate transactions conducted by the firm).

Barclays’ relationship with Premier FX

4.34. Premier FX became a client of Barclays on 1 June 2006. Barclays provided Premier

FX both with payment accounts, which allowed Premier FX to conduct its money

remittance activities, and with foreign exchange services, through which Premier

FX could exchange currency on commercial terms. Barclays earned revenue from

its relationship with Premier FX both through charging Premier FX fees for the

provision of banking services and through benefiting from the differences in

currency exchange rates available to Barclays and those which it offered Premier

FX. Between February 2011 and August 2018, Barclays earned over £1.1 million

revenue as a result of its relationship with Premier FX. Barclays was Premier FX’s

sole banker in the UK, of which Barclays was aware. Barclays was aware of Premier

FX’s target customer base throughout the relevant period. Throughout the relevant

period, Barclays classified Premier FX as a high-risk customer.

4.35. Barclays managed its relationship with Premier FX as part of its Corporate Banking

Division’s MSB customer segment. Barclays defined MSBs as non-bank financial

institutions that generally provide products and services related to money orders,

traveller’s cheques, money transmission, cheque cashing, currency exchange,

currency dealing or stored value. MSBs included money remittance firms, currency

brokers, electronic money providers and bureaux de change.

4.36. Until 2013, Barclays’ coverage of MSBs was split along geographical lines. From

late 2013, management was centralised in a single team of specialist relationship

directors. It was the responsibility of the relationship director to ensure compliance

with Barclays’ ongoing monitoring requirements and to gather the information

necessary from the customer.

4.37. Prior to 2015, AML reviews were not routinely escalated to a committee for

discussion. However, Barclays’ AML & Sanctions team undertook quality assurance

testing on the AML reviews and a relationship director could escalate a particular

question or concern to that team and request guidance.

4.38. Following its review of MSB business relationships between 2013 and 2014 (see

paragraphs 4.111 to 4.119 below), relationship directors were overseen by the

FMRF whose role was to approve the continuation of Barclays’ banking relationship

with the MSB. The FMRF provided centralised oversight and governance over

processes for new customer acceptance, managing ongoing relationships, and

declining or exiting customer relationships. All key decisions in relation to MSB

customers were escalated to the FMRF for approval. Submissions to the FMRF

required the relationship director to confirm whether Barclays’ minimum

requirements had been met, and if not, to explain why.

4.39. Barclays recognised that its MSB customers were susceptible to heightened money

laundering and other risks, and thus presented a higher risk to Barclays. To reflect

this, in addition to the general customer due diligence process required to be

followed for Barclays Corporate customers, Barclays had in place a set of minimum

requirements throughout the relevant period that were mandatory for any

prospective or existing MSB customers.

4.40. The purpose of these minimum requirements was to ensure that MSB customers

fell within Barclays’ risk appetite. They included “requiring the MSB customer to be

of a sufficient size, authorised by the appropriate regulators and operating systems

and controls designed to meet the regulatory requirements imposed on it”. They

were considered throughout an MSB customer’s lifecycle, forming a key part of

Barclays’ decision-making for customer acceptance, account opening, annual and

trigger event-based review processes, as well as the processes for declining or

exiting customer relationships.

4.41. In particular, prior to onboarding, MSB customers were required by Barclays to

confirm their regulated status. In verifying the MSB’s status, Barclays confirmed

whether the MSB was likely to be subject to obligations under the PSRs to safeguard

some customer funds.

4.42. As explained in paragraphs 4.76 to 4.118 below, Barclays changed these minimum

requirements over the course of the relevant period to reflect changes in its risk

appetite towards the MSB sector including, from May 2013, a specific requirement

that the MSB had to demonstrate that it had robust internal controls to segregate

client funds from its own funds. Barclays provided no written guidance on how this

requirement should be verified but, according to Barclays, reviewers considered it

to be fulfilled in practice by confirming that the MSB was appropriately authorised,

and that the MSB held and operated currency accounts separate from the MSB’s

‘office’ accounts and one or more designated safeguarding accounts without any

further enquiry being made. If the MSB did not meet the criteria, Barclays could

have terminated its offer of banking services, subject to any mitigating

circumstances.

4.43. As outlined below, Barclays’ oversight and monitoring of Premier FX, throughout

the relevant period, failed to include appropriate further enquiries when it received

information from Premier FX to ensure that Premier FX’s actual business activity

aligned with Barclays’ expectation of its business activity based on its

understanding of Premier FX and failed to identify that its controls were deficient.

Premier FX’s bank accounts

Overview of accounts

4.44. During the relevant period, Premier FX maintained 74 bank accounts at Barclays,

in 33 currencies. Barclays permitted the number of accounts operated by Premier

FX to grow from a total of 33 accounts in February 2011 to 69 accounts in August

2018 (five accounts were closed during the relevant period). In particular:

(1)
Barclays facilitated the growth of Mr Rexstrew’s other business ventures

(e.g. Global Currency Service and Alacrity Payments) by allowing Premier

FX to open and operate 13 “re” accounts on behalf of these other businesses

(see paragraphs 4.52 to 4.67 below); and

(2)
Barclays also opened 23 new accounts in October 2015 in currencies for

which Premier FX already held accounts at Barclays to assist with its credit

risk management (see paragraphs 4.68 and 4.69 below).

4.45. Four of the 74 accounts were designated a “client account” whereby Barclays had

agreed not to exercise a right of set-off over the funds in those accounts under its

terms and conditions:

(1)
the Client Account (GBP);

(2)
another pounds sterling account which was closed on 9 December 2011;

(3)
the Kenyan Shillings Account, which was relatively inactive during the

relevant period; and

(4)
a Moroccan dirhams account which was completely inactive and was closed

on 1 December 2014.

4.46. None of the other bank accounts maintained by Premier FX during the relevant

period were otherwise designated in such a way as to show that they were accounts

which were held for the purpose of safeguarding relevant funds in accordance with

the PSRs. Premier FX did not inform Barclays that any of the 74 accounts contained

relevant funds nor did it seek an acknowledgement from Barclays that the bank

had no rights or interest over the funds in any of the accounts in the event of

Premier FX’s insolvency.

Transfers between Premier FX accounts

4.47. In its EDD reviews Barclays recorded that the purpose of the Office Account (GBP)

was to receive commissions from client transactions and pay Barclays’ charges.

However, it does not appear that Barclays reviewed payments between the Office

Account (GBP) and other accounts held by Premier FX as part of its AML and EDD

reviews, in particular the transfers made by Premier FX between the Client Account

(GBP) and the Office Account (GBP), as such transfers were not considered a source

of significant financial crime risk.

4.48. Had Barclays made appropriate enquiries about the operation of the Office Account

(GBP) as part of its regular AML and EDD reviews of Premier FX, it may have

ascertained that, during the relevant period, transfers were made by Premier FX

between the Office Account (GBP) and other accounts for which, given the size and

scale of Premier FX’s operations, there was no clear, commercial rationale and

which appeared to be inconsistent with the proper segregation of customer and

company funds.

4.49. Between 28 August 2013 (when the Office Account (GBP) began operation) and 9

November 2018 (the last transaction on the account), Premier FX transferred

approximately £28.96 million to the Office Account (GBP) from its other pounds

sterling accounts, including approximately £27.39 million (95%) from the Client

Account (GBP). The number and value of transfers from the Client Account (GBP)

to the Office Account (GBP) varied significantly over the course of this period. In

particular, during 2014, Premier FX transferred approximately £11.66 million from

the Client Account (GBP) to the Office Account (GBP), representing nearly 16% of

the total amount debited from the Client Account (GBP) that year. This represented

an increase in excess of four times the amount transferred in 2013 (£2.82 million).

Further, in the same year, Premier FX also transferred approximately £9.48 million

back from the Office Account (GBP) to the Client Account (GBP).

4.50. There is no obligation on a bank to attempt to verify the legitimacy of each

transaction between a customer’s accounts. However, it should have a broad

understanding of how its customer is operating its accounts and ensure that the

broad pattern of transactions at a high level is consistent with this understanding.

The AML/EDD reviews provided an opportunity for Barclays to do this. However,

because Barclays did not make appropriate enquiries about the operation of

Premier FX’s accounts, it was not in a position to appreciate the apparent

inconsistency of the transfers with the appropriate segregation of funds by Premier

FX’s business.

4.51. Financial History Reports were used by relationship directors during the AML and

EDD reviews to monitor account activity, but focussed on third party debits and

credits on the basis that these posed the highest financial crime risk.

Global Currency Service “re” accounts

4.52. Global Currency Service was an API separately authorised by the Authority. Global

Currency Service’s business and customer base were distinct from those of Premier

FX, as it focussed on customers from the film industry. It maintained its bank

accounts with Barclays until, following a review of its MSB customer base, Barclays

decided to terminate its banking relationship with effect from August 2013 on the

basis that Global Currency Service did not meet Barclays’ minimum NTA

requirement.

4.53. However, the month before Barclays closed its accounts, Mr Rexstrew proposed to

Barclays on 7 July 2013 that Global Currency Service could instead operate through

Premier FX’s systems. The proposal was submitted to Barclays’ AML & Sanctions

team, which confirmed that the accounts could be opened on the condition that

Premier FX ensured that its compliance function was sufficiently robust. This was

conveyed to Mr Rexstrew, following which Barclays opened three “re” accounts in

pounds sterling, US dollars and euros that Premier FX would operate on behalf of

Global Currency Service on 11 July 2013. According to Barclays, “re” accounts

“signify that the account relates to a secondary party and is used to enable easier

reconciliation and identification of transactions relating to that secondary party”.

4.54. In permitting this arrangement with Premier FX, Barclays appears not to have

considered that Global Currency Service, as an API, was subject to its own

safeguarding requirements under the PSRs, as it did not ask Premier FX to confirm

that its accounts for Global Currency Service would not be used to hold relevant

funds. Barclays also appears not to have considered what would happen to the

funds of Global Currency Service’s customers if Premier FX became insolvent. When

Premier FX entered into administration on 13 August 2018, Global Currency Service

(by then a wholly owned subsidiary of Premier FX) was unable to access any of the

“re” accounts to process customer orders. This arrangement effectively caused the

insolvency of Global Currency Service.

Alacrity Payments “re” accounts

4.55. Mr Rexstrew established Alacrity Payments on 14 March 2013 and was its sole

director and shareholder. On 21 June 2013, he sent a business plan to Barclays

setting out how Alacrity Payments would seek to provide a secure online foreign

exchange payment platform to other APIs, commercial and professional businesses,

and high net worth individuals.

4.56. Premier FX registered Alacrity Payments with the Authority as its agent on 14 June

2013, but Mr Rexstrew intended that it have its own authorisation under the PSRs.

Barclays opened four bank accounts for Alacrity Payments in November 2013 (a

fifth account was opened in January 2014).

4.57. Pending full authorisation by the Authority, Barclays also agreed on 25 November

2013 in the interim to open “re” accounts for Alacrity Payments on the condition

that it was registered with the Authority as Premier FX’s agent (it already had been

registered) and with HMRC. Barclays opened three Alacrity Payments “re” accounts

in January 2014 in pounds sterling, euros and US dollars.

4.58. Alacrity Payments was authorised by the Authority as an API on 15 August 2014.

From this time, there does not appear to have been a need for these “re” accounts

to remain open and active.

4.59. In September 2015, the FMRF was informed that Premier FX had an offer from a

Russian bank to sell Alacrity Payments for £50,000 with the sale expected to

happen in October 2015. The FMRF instructed that the “account” should remain

inactive with no client monies to be received and that it should be closed as soon

as possible after the sale’s completion.

4.60. The relationship director asked Mr Rexstrew on several occasions about the sale of

Alacrity in October and November 2015. Mr Rexstrew stated on 16 November 2015

that he had been paid “half [of the] Alacrity money (25k) on [Friday] into a [sic]

escrow account”.

4.61. Mr Rexstrew confirmed to Barclays in February and March 2016 that Alacrity

Payments was still in the process of being sold, and he expected completion would

take place as soon as the Authority’s change of ownership document was

completed. Mr Rexstrew therefore requested the closure of “all the bank accounts

we opened relating to Alacrity Payments”. Between March and June 2016, Barclays

closed the five accounts it had opened for Alacrity Payments. However, it did not

close the three “re” accounts that it had opened for Premier FX to operate on behalf

of Alacrity Payments prior to its authorisation by the Authority. Barclays stated

during the investigation that it thought Mr Rexstrew’s request only related to the

accounts directly held by Alacrity Payments and not the “re” accounts, but did not

explain why the latter accounts should remain open if Premier FX had sold Alacrity

Payments.

4.62. Barclays recorded in an EDD report prepared in April 2016 that Alacrity Payments

had been sold, the sale was due to be completed in March 2016, and half of the

£50,000 sale price had already been paid. It also stated that the accounts had been

closed, which was incorrect even for the accounts directly held by Alacrity Payments

because two were not closed until June 2016. The FMRF was told later in April that

Alacrity Payments had been sold, the sale was completing that month, that the

proceeds were to be received within four weeks and that the accounts were closed.

4.63. In reality, Mr Rexstrew did not sell Alacrity Payments and the business had failed

by 2016. It was dissolved via compulsory strike-off on 23 May 2017.

4.64. If Barclays believed that Alacrity Payments had been sold in April 2016, it should

have made further enquiries as to why Premier FX was using the “re” accounts

following the purported sale in April 2016.

4.65. The pounds sterling and euro “re” accounts were not used, though the pounds

sterling “re” account was not closed until 25 July 2017 and the euros “re” account

remained open for the remainder of the relevant period, as no request was received

from Premier FX to close the account.

4.66. However, Mr Rexstrew immediately began using the US dollar “re” account.

Between January 2014 when the account was opened and April 2016 when Barclays

was told Alacrity Payments had been sold, approximately $4.47 million was credited

to this account in settlement of foreign exchange deals transferred from other

Premier FX bank accounts at Barclays. The majority of the US dollars were then

transferred to the US Dollar Account or to one of the Global Currency Service “re”

accounts (although some of the funds were exchanged into another currency and

transferred to another Premier FX account).

4.67. The Authority understands that Alacrity Payments never commenced trading.

Accordingly, it is unlikely that these transactions were connected with Alacrity

Payments’ business. It appears that Mr Rexstrew was instead using the US dollar

“re” account to receive the proceeds of Premier FX client funds following a foreign

exchange. The FMRF’s instruction in September 2015 that no client monies were to

be received was not followed up on. Indeed, Mr Rexstrew continued to use this

account until January 2017.

BARX Live accounts

4.68. On 27 October 2015, Barclays opened 23 additional accounts in 23 currencies for

which Premier FX already had accounts. These accounts were opened as part of

Premier FX’s migration from the BARX Corporate Platform to the BARX Live

platform, the facility provided by Barclays that Premier FX used to conduct its FX

trades. Mr Rexstrew was told by Barclays that these additional accounts were

necessary to use BARX. However, Barclays subsequently clarified in the

investigation that it was not necessary to open these additional accounts but they

would have been expected to be established for credit risk management purposes

in line with best practice.

4.69. Barclays did not record the existence of these accounts in any of its subsequent

EDD reviews of Premier FX (see paragraphs 4.133, 4.137 and 4.148).

Barclays’ processes for monitoring relationships with MSB customers

(2011 to 2013)

4.70. Barclays completed an annual Business Activity Review of its corporate customers,

including MSBs, as part of its annual reviews of customer due diligence information

pursuant to its ongoing monitoring obligations. Barclays considered Business

Activity Reviews to be the primary process through which a customer’s turnover

(i.e. the activity occurring across a customer’s accounts) for the previous 12-month

period and its predicted future activity was reviewed in order to confirm there had

been no activity inconsistent with Barclays’ knowledge of the customer’s business

and risk profile. Barclays used this information to decide if continuing the banking

relationship was an acceptable anti-money laundering risk or whether further

analysis or customer engagement was required to better understand customer

turnover (e.g. carrying out an ad-hoc EDD review).

4.71. On the form that was required to be completed as part of the Business Activity

(1)
Barclays would compare the expected customer turnover recorded in the

previous Business Activity Review with the actual customer turnover across

the MSB’s bank accounts since the previous Business Activity Review (taken

from the Financial History Report);

(2)
Barclays would then assess what the expected customer turnover would be

for the forthcoming year following a dialogue with the customer on their

future strategy and expectations; and

(3)
lastly, Barclays would attest that it had reviewed the customer relationship

and was satisfied that it should continue.

4.72. Barclays carried out Business Activity Reviews on Premier FX on the following dates

and forecast the following turnover (i.e. the activity occurring across all of Premier

FX’s accounts held with Barclays):

Date of Business
Activity Review

Projected turnover
% increase from
previous review

28 April 2011
£12 million
-

26 July 2012
£22 million
83%

13 August 2013
£45 million
105%

21 July 2014
£85 million
89%

1 December 2015
£100 million
18%

24 November 2016
£100 million
0%

30 January 2017
£150 million
50%

10 January 2018
£155 million
3%

4.73. Barclays therefore forecast that Premier FX’s turnover would increase sevenfold

between April 2011 and July 2014. There is no evidence that as a result of this

expected significant growth, Barclays took any additional steps to monitor Premier

FX, including assessing what, if any, effect the increased business may have on the

sufficiency of Premier FX’s internal controls.

4.74. According to the statements made in the Business Activity Review reports, the main

reason for the significant increase was the creation of Mr Rexstrew’s associated

business, Alacrity Payments:

(1)
the August 2013 Business Activity Review report explained a projected

105% increase in turnover by stating that Mr Rexstrew was “starting a new

online FX broker company which is likely to increase flows through Premier

FX” (i.e. Alacrity Payments); and

(2)
the July 2014 Business Activity Review report projected that Premier FX’s

turnover would increase by 89% to £85 million and noted that “Online

version/platform to be included 2014”.

4.75. As stated in paragraphs 4.59 to 4.63 above, Mr Rexstrew later told Barclays in 2015

and 2016 that he was selling and then had sold Alacrity Payments. In reality,

however, Alacrity Payments was not sold and the Authority understands never

commenced trading.

MSB Minimum Operating Standards October 2010 revision

4.76. In October 2010, just prior to the start of the relevant period, Barclays implemented

a new version of its MSB Minimum Operating Standards. This document set out a

number of standards and requirements that focussed on mitigating the money

laundering risks presented by MSB customers.

4.77. Among other things, the MSB Minimum Operating Standards required that an AML

review be completed on MSB customers either quarterly, six monthly or annually.

Barclays carried out five AML reviews of Premier FX between March 2011 and March

2013 (see paragraphs 4.81 to 4.110 below).

4.78. Barclays also issued in October 2010 a template to its relationship directors which

set out the matters that needed to be considered as part of the AML review. As well

as ascertaining whether the MSB was registered with the Authority and HMRC,

Barclays required the AML review to (among other matters) describe in full the

MSB’s business, assess whether the foreign exchange rates used by the MSB were

reasonable and consistent with market rates, and “critically” assess customer

turnover.

4.79. In assessing the customer’s turnover and checking for changes in the trends of

account activity, the relationship director would consider the MSB’s last Business

Activity Review report (see paragraph 4.70 above), as well as a Financial History

Report.

4.80. The relationship director would then meet with the customer at an AML review

meeting to discuss whether the customer’s business activity had changed or was

out of line with the relationship director's understanding of the business. The

Barclays relationship director typically arranged meetings with Mr Rexstrew at

which they could gather the information needed for the review. At these meetings,

Mr Rexstrew would show the relationship director documents in order to satisfy

them that Premier FX met the relevant requirements. The relationship director did

not always take copies of the documents viewed at the meetings and the reports

did not fully detail the points discussed. Consequently, Barclays was unable to

produce to the Authority copies of all the materials it relied on to complete the AML

reviews that took place from 2011 to 2013.

March and September 2011 AML reviews

4.81. The 15 March 2011 AML report followed the AML review template, although it did

not record an assessment of Premier FX’s turnover as required. The report

identified Mr Rexstrew as the sole shareholder and director and as the only full-

time employee. Mr Rexstrew was also identified as the ‘AML officer’.

4.82. The next report on 13 September 2011 was essentially a copy of the previous

review, albeit it reflected a 50% increase in personal clients (from 800 to 1,200)

and a 750% increase in corporate clients (from 40 to 300) in the interim six-month

period. There was again no assessment of Premier FX’s turnover. There is no

evidence that Barclays sought to verify these customer figures, nor that Barclays

sought information about any enhanced AML controls employed by Premier FX to

take account of the significant growth of its business.

MSB Minimum Operating Standards 2011 update

4.83. During 2011, Barclays issued a new version of the MSB Minimum Operating

Standards document. This version included an additional requirement that all MSBs

had to be managed by a relationship director with relevant experience of the sector

and who had undergone enhanced training with the AML team.

4.84. The requirements set out in the accompanying AML review template were also

updated in late 2011 and contained further details on what information needed to

be obtained from the MSB customer in the course of the review. For example, the

AML review now required that Barclays:

(1)
obtain a “fairly accurate” numerical breakdown of the MSB’s clients and

where the MSB had relationships with business clients in high-risk

industries, full details of EDD performed by the MSB on those clients so that

Barclays had a clear understanding to assess the risks both from money

laundering and sanctions perspectives relating to the MSB’s client base; and

(2)
set out the activity in the customer’s accounts clearly in the review, noting

the types of transfers and whether the turnover changed during the course

of the year.

4.85. The template also required Barclays to obtain “testing of the MSB’s own compliance

programme”, noting that, "[w]here possible, if the MSB has a formal testing

programme of its internal AML control, obtain evidence of it". This was described

as “a requirement of Group AML Policy”. Additional text in the template stated that

such a programme could either be “internally performed (by an audit team or

suchlike) or externally performed when an independent body looks at the controls

and provides a written report to the directors…Informal visits and ‘support’…do not

count”.

4.86. The Minimum Operating Standards stated that use of the template and provision of

the information in line with the guidance notes was mandatory.

March 2012 AML review

4.87. The 21 March 2012 AML report adopted the new format prescribed by the updated

AML review template. The report recorded that:

(1)
Mr Rexstrew was the 100% shareholder, sole director and the MLRO;

(2)
in the previous six months Premier FX’s personal client base had grown

again from 1,200 to 1,800 (of whom 1,200 were active clients) and its

corporate clients had grown from 300 to 350 (of whom 300 were active

clients); and

(3)
under “Business Transaction Profile” that “the flows are pretty much

consistent year on year” (notwithstanding that four months later Barclays

would estimate an 83% increase in customer turnover from the previous

year in a Business Activity Review based upon information provided by

4.88. However, instead of recording whether or not Premier FX had a formal testing

programme in place for its compliance programme, the relationship director

retained the guidance language of the template and no substantive answer to the

requirement was included in the report. As a result, it is unclear whether Barclays

made enquiries of Premier FX and ascertained whether such testing programme

existed or whether it failed to address the question.

MSB Minimum Operating Standards July 2012 update

4.89. Barclays updated its MSB Minimum Operating Standards document and the AML

review template again in July 2012. The requirements in the MSB Minimum

Operating Standards were substantially the same as for the 2011 version for

existing customers, save for a new requirement that MSBs operating in the US or

providing services to clients in the US had to be registered with the US Department

of Treasury Financial Crimes Enforcement Network (FinCEN) and any relevant

state-level regulators. It remained a requirement to use the AML review templates

and to provide information in line with the guidance notes.

4.90. The new AML review template included several additional requirements. For

example, it now required that Barclays:

(1)
review all of the MSB's bank accounts in order to describe the customer’s

activity accurately; and

(2)
for MSBs providing services to customers located within the US, either

confirm FinCEN and US State registration, or confirm that they do not

provide such services and explain how the MSB ensures it does not provide

such services on an ongoing basis.

September 2012 and March 2013 AML reviews

4.91. The 10 September 2012 AML report, in purported compliance with these new

requirements, recorded that:

(1)
Mr Rexstrew was the 100% shareholder, sole director and MLRO;

(2)
Premier FX’s personal clients remained at 1,800 (of whom 1,200 were

active) but that corporate clients had again grown from 350 to 400 (of whom

350 were active);

(3)
in relation to the need for FinCEN and US State licensing, no services were

provided to customers located in the US;

(4)
in relation to the profile of Premier FX’s transactions, “All accounts have

been reviewed and seemed to be acuarate [sic] in line with trends and flows”

and (repeating the line from the previous AML report word for word) “We

see direct credits into the account via BIPS /CHAPS payments in or online

banking payments in, no cash. You will see from the FHR that the flows are

pretty much consistent year on year”; and

(5)
in relation to obtaining additional details of Premier FX’s transaction

monitoring, “Peter [Rexstrew] signs off every transaction. So he will monitor

any link or trasnactions [sic] via the customer history that is stored on their

systems. As advised, Peter signs off every transactions and EDD is

performed on every transactions which will include source of funds [sic]”.

4.92. The AML report also responded to the requirement to obtain testing of the MSB’s

compliance programme by stating simply that Premier FX did not “have a formal

testing programme for its internal AML control process”. The contents of the report

were otherwise, changes in format and minor updates aside, copied from the 21

March 2012 report.

4.93. According to Barclays, in assessing the customer’s turnover and checking for

changes in the trends of account activity, the relationship director would consider

the MSB’s last Business Activity Review. As at 10 September 2012, the last

Business Activity Review had been carried out in July 2012. The July 2012 Business

Activity Review stated that Premier FX’s projected 83% increase in turnover was

”in line with AML reviews” even though, as noted in paragraphs 4.82 and 4.83

above, on the face of the documents, there was no assessment of Premier FX’s

turnover in either of the AML reviews that took place in 2011 and the March 2012

AML review stated that “the flows are pretty much consistent year on year”. This

inconsistency was not resolved in the September 2012 AML review, which repeated

that “the flows are pretty much consistent year on year” indicating that the

Business Activity Review appears not to have been considered as part of the AML

review.

4.94. The next AML review took place on 4 March 2013. The contents of the report were

identical to the contents of the September 2012 AML report save that:

(1)
Premier FX’s personal client base had further grown from 1,800 to 2,000 (of

whom 1,400 were active) and its corporate clients had grown from 400 to

450 (of whom 400 were active); and

(2)
Premier FX had opened offices in Spain.

4.95. The report also confirmed that Premier FX still did not have a formal testing

programme for its internal AML controls notwithstanding the continued growth of

the firm.

MSB Minimum Operating Standards May 2013 update

4.96. Barclays updated its MSB minimum standards again in May 2013 when it issued a

new document called “Money Service Businesses - Minimum Standards”. This

document was more detailed than the MSB Minimum Operating Standards

documents issued over the previous three years. It required that, in addition to the

requirements of Barclays’ Corporate KYC process, each prospective and existing

MSB customer had to demonstrate that:

(1)
it had robust internal controls to prevent and detect money laundering,

terrorist financing or the circumvention of international sanctions;

(2)
it was registered with HMRC;

(3)
where required it had been authorised under the PSRs by the Authority;

(4)
it had a designated AML compliance officer appointed with appropriate

seniority, independence and experience;

(5)
it had robust internal controls to segregate client funds from company funds;

and

(6)
it met Barclays’ minimum threshold in NTA.

4.97. According to Barclays, the minimum requirements that (1) the MSB customer

should be authorised under the PSRs by the Authority and (2) that it should

demonstrate robust internal controls to segregate client funds from company funds

reflected its MSB customer’s responsibility to safeguard funds.

4.98. This was the first time in the relevant period that the specific requirement that an

MSB customer demonstrate robust internal controls to segregate client funds from

company funds was referred to in any of the documents which set out Barclays’

minimum requirements.

4.99. The “Money Service Businesses - Minimum Standards” document also contained a

requirement that all MSB customers must be subject to an annual review of the

relationship (as opposed to previous versions which required reviews to happen

either quarterly, six monthly or annually as appropriate), such review to include:

(1)
a KYC refresh (in line with Corporate Banking KYC procedures);

(2)
a review of the MSB’s business and payment activity;

(3)
a re-validation of whether the MSB was meeting the minimum standards

(i.e. as set out in paragraph 4.78 and 4.96 above);

(4)
completion and assessment of the AML review template to ensure the MSB

continued to represent an acceptable risk; and

(5)
an externally-conducted review (to be paid for by the MSB but addressed to

Barclays) of the MSB’s internal compliance controls.

4.100. Barclays revised the format of the AML review template in October 2013 which

contained a number of additional requirements including the following:

(1)
the relationship director had to explain in the AML report the expected future

business activity of the MSB until the next review, taking into account any

plans that may have a material impact on the MSB’s levels of activity;

(2)
although the preceding version required a review of all of the MSB’s accounts

(see paragraph 4.90(1) above), this updated template only required the

“main client accounts” to be reviewed to determine whether the turnover

levels were in line with expectations; and

(3)
a requirement to obtain a copy of any testing that the MSB had undertaken

on its own compliance programme or a summary of that testing prepared

by an independent party.

4.101. The AML review template also required the relationship director to consider whether

the minimum standards had been met and, if not, "provide the rationale for wanting

to on-board or maintain the relationship (including risk rationale) and the MSB

Coverage Head's approval". However, although the MSB Minimum Operating

Standards included a requirement that the MSB customer must be able to

demonstrate robust internal controls to segregate client funds, the AML review

template was not updated at this point to require any information from the

customer that would enable Barclays to assess the MSB against this minimum

requirement. This was not included in the review template until 2014 when Barclays

made further updates to the oversight of its MSB business (see paragraph 4.111

below).

August 2013 review by Financial Crime Compliance

4.102. Between August and December 2013, Barclays’ Financial Crime Compliance Team

carried out a review of Premier FX in line with the MSB Minimum Operating

Standards which was prompted by Mr Rexstrew’s request that Barclays open bank

accounts for his separate business Alacrity Payments (see paragraph 4.56 above).

During that review, the Financial Crime Compliance Team expressed a number of

concerns about Premier FX and requested further information before they could

approve Premier FX's EDD review.

4.103. One of those concerns was that Mr Rexstrew was the sole director, CEO, MLRO and

shareholder and, in light of the size of the business, suggested that further details

should be obtained on how Mr Rexstrew delegated and managed Premier FX’s

business.

4.104. Barclays raised these concerns with Premier FX and it was agreed that Premier FX

would appoint an independent MLRO. Subsequently, Premier FX appointed as MLRO

an independent regulatory compliance consultant with previous experience working

with MSBs and e-Money clients. Barclays was aware that this person was a

consultant who was not employed by Premier FX and did not work for it full-time

but were aware that he had been involved with Premier FX’s business for a number

of years and were informed that he would be supported by a number of individuals

from the compliance consultancy that he operated. Barclays considered this to be

sufficient to address the concerns raised by the Financial Crime Compliance Team.

4.105. The Financial Crime Compliance Team also expressed concerns that Premier FX was

providing services to US nationals without a FinCEN licence based on a review of

Premier FX’s website. As noted in paragraphs 4.89 and 4.90 above, Barclays

introduced a minimum requirement in July 2012 requiring confirmation whether

the MSB was operating in the US or providing services to clients in the US and, if

so, whether the MSB was registered with FinCEN and any relevant US state-level

regulator. Barclays recorded in the September 2012 and March 2013 AML reviews

that Premier FX did not provide services to customers located in the US.

4.106. Again, this appears to have been discussed with Mr Rexstrew who explained that

while Premier FX’s website software could have been configured to prevent US

residents or passport holders registering as customers, this would have generated

more telephone enquires so their applications were manually blocked instead.

Although Compliance continued to express concern in October 2013 that Premier

FX Limited appeared to be servicing US clients, they were satisfied with Premier

FX’s response on the basis that it used the software “as a control to identify and

reject US customers”.

4.107. Premier FX continued to tell Barclays in subsequent EDD reviews that it did not

have any US-based clients. Had Barclays carried out a high-level review of activity

on the US Dollar Account it would have identified that Premier FX made a series of

payments to banks based in the US from the US Dollar Account. Between January

and July 2013, Premier FX made 38 payments totalling approximately $1.38

million, while between January 2013 and November 2016, Premier FX made 623

payments totalling approximately $25.05 million. Although these transactions may

have been payments made on the instructions of non-US based clients, Barclays

ought to have confirmed this with Premier FX.

Summary of AML reviews 2011 to 2013

4.108. In summary, therefore by the end of 2013:

(1)
Barclays was aware that Premier FX was owned and directed by one person,

Mr Rexstrew, who also oversaw all its transactions;

(2)
Premier FX had told Barclays that its personal client base had grown 250%

(from 800 to 2,000) and its corporate client base had grown over 1,100%

(from 40 to 450) but there is no evidence that Barclays considered whether

Premier FX’s internal controls had changed in light of this rapid growth;

(3)
Barclays had not received any independent testing of Premier FX’s

compliance processes;

(4)
Barclays’ assessment of Premier FX’s account activity was not recorded in

some of the reports and in other reports appears to have been inconsistent

with the information contained in the Business Activity Reports; and

(5)
the contents of some reports were nearly identical to the contents of the

previous report indicating that either fresh information was not sought from

Premier FX or that Barclays did not carry out a review of account activity.

4.109. These matters indicate that Barclays took a superficial approach to reviewing its

relationship with Premier FX during the period from 2011 to 2013. Premier FX grew

significantly during this period and Barclays made limited enquiries as to whether

Premier FX’s internal controls were also improving.

4.110. Barclays was aware that Premier FX was authorised by the Authority as an API, and

held and operated currency accounts separate from its ‘office’ accounts and one or

more safeguarding accounts. As noted in paragraph 4.101 above, the MSB

Minimum Operating Standards issued in May 2013 included a requirement that the

MSB customer demonstrate robust internal controls to segregate client funds, and

the AML review template was updated in October 2013 to require the relationship

director to consider whether the minimum standards had been met and, if not,

“provide the rationale for wanting to on-board or maintain the relationship

(including risk rationale) and the MSB Coverage Head's approval”. The review

template was further updated in 2014 when Barclays introduced the updated EDD

review template. The EDD review template included a ‘Check List’ of the minimum

standards at the top of the document, with the question “Standards Met?”.

Barclays’ processes for monitoring relationships with MSB customers

(2014 to 2018)

Review of MSB processes 2013 to 2014

4.111. Barclays carried out a review of its MSB business between 2013 and 2014. This

review led to:

(1)
the introduction of a risk appetite document;

(2)
the replacement of the AML review template with an EDD review template;

and

(3)
the introduction of the FMRF to oversee the ongoing monitoring of MSB

customers.

4.112. Barclays’ MSB risk appetite document set out the minimum requirements for

different categories of MSB (money remitters, bureaux de change, FX brokers, etc.)

which had previously been included in the “Money Service Businesses - Minimum

Standards” document produced in 2013. It defined FX brokers as a “firm or

individual who offers trading services to people who want to buy and sell

currencies” and which Barclays classed as high-risk. Premier FX was categorised by

Barclays in its EDD reviews as an FX broker. Barclays reissued its MSB risk appetite

document annually between 2015 and 2017. The minimum standards in the July

2015 and July 2016 versions were substantially the same as ones in the 2014

version.

4.113. The minimum requirements that FX brokers needed to meet in order for Barclays

to continue the relationship included:

(1)
it complied with Barclays’ minimum threshold in NTA and income;

(2)
proof of regulated status;

(3)
externally audited transaction monitoring systems in place; and

(4)
an external due diligence audit at a frequency in line with risk policies.

4.114. In contrast to the “Money Service Businesses - Minimum Standards” document

produced the previous year, the MSB risk appetite document did not, until

November 2017, include a specific requirement that the MSB customer have “robust

internal controls to segregate client funds from company funds”. However, Barclays

also produced an EDD review template at some point in 2014, which contained a

checklist of the minimum requirements that required the reviewer to confirm (by

yes or no) that an MSB met certain threshold criteria.

4.115. In November 2017, Barclays updated its MSB risk appetite document following the

implementation of the PSRs 2017 and included in the document a “general criteria

standard” that the MSB “must have robust systems and controls in place to

segregate any of their client funds they hold from their own company cash flows".

4.116. The remainder of the EDD review template comprised a schedule of actions or items

that needed to be done as part of the EDD review, with a brief summary for each

action or item of what Barclays’ policy required, and instructions as to what

evidence the relationship director needed to obtain. The schedule contained

additional columns for the relationship director to add their commentary and to

confirm completion of the action or item. Although Barclays categorised the review

from that point in time as an “EDD review”, aside from the checklist which was at

the beginning of the template, the schedule replicated the requirements in the

October 2013 version AML review template virtually word for word.

4.117. The relationship director continued to be required to review a customer’s turnover

to determine if the activity appeared reasonable and in line with their expectations

as part of the EDD review. As with the AML reviews, the relationship director was

still required to consider the Business Activity Reviews and Financial History

Reports, in light of their knowledge of the customer and their interactions with

them, to complete the EDD review. The relationship director was expected to seek

clarifications from the customer if its overall customer turnover had changed or

was out of line with the relationship director's understanding of the business. They

were required to retain copies of the documents needed to confirm that the

customer met the minimum requirements to complete the review.

4.118. Barclays produced an updated version of the EDD review template in January 2015,

the requirements of which were substantially the same as the requirements in the

2014 version.

4.119. Barclays conducted three EDD reviews between 2015 and 2018. Although Barclays’

policies required it to conduct an EDD review annually, no review of Premier FX

took place in 2014 and the first EDD review of Premier FX did not take place until

January 2015, some 22 months since the preceding AML review. Barclays explained

that while the EDD review was begun in 2014, it was delayed by Premier FX failing

to provide an independent compliance review in a timely manner.

January 2015 EDD review

4.120. The first EDD report was prepared in January 2015 and also covered Alacrity

Payments which also held bank accounts at Barclays.

4.121. The EDD review recorded that Premier FX had 2,500 registered personal clients,

1,500 of whom were active, and 450 registered corporate clients, of which 400

were active. It stated that Premier FX had recently opened an office in Dubai.

4.122. The EDD review template required confirmation that the MSB customer had “robust

internal controls to segregate client funds from company funds”.

4.123. The EDD review template also provided for a review of Premier FX’s bank accounts

to be carried out. The template required Barclays “to have some sight of customer

activity to understand it and take a view on whether it appears reasonable” and “as

a minimum” to confirm that it had “reviewed the main client accounts held and can

confirm that turnover levels appears to be in line with expectations”.

4.124. At the time, Barclays knew that Premier FX held client accounts in pounds sterling

(i.e. the Client Account (GBP)) and the Kenyan Shillings Account. Barclays recorded

in the January 2015 EDD report that:

(1)
Premier FX held six pounds sterling and 35 currency accounts;

(2)
it held a client account in pounds sterling (there was no reference to the

Kenyan Shillings Account);

(3)
clients’ funds were received “in GBP or to a currency account” an FX

transaction was undertaken and settled in the relevant currency account

from which payments were made;

(4)
commissions received from clients and bank charges were applied to the

Office Account (GBP);

(5)
turnover levels were increasing steadily year on year; and

(6)
pounds sterling and euros made up the bulk of transactions within the

business.

4.125. The report did not mention the transfers between the Client Account (GBP) and the

Office Account (GBP) and Barclays did not ask questions regarding Premier FX's use

of its office account.

4.126. Barclays also required Premier FX for the first time to arrange an independent

compliance review of its systems and controls for the 2014 EDD review which was

finalised in January 2015 (see paragraph 4.113(4) above). A report was prepared

by an independent compliance consultant on 16 December 2014 which Mr Rexstrew

provided to Barclays on 23 December 2014. The report considered Premier FX’s

compliance with the requirements of the MLRs and the PSRs, including

safeguarding. The report stated in its introduction that “Due to time constraints,

the scope of the review was one of a high-level overview rather than extensive,

detailed, testing of all internal control mechanisms”.

4.127. In relation to safeguarding requirements, the compliance report stated that:

"Premier FX uses the segregation method to safeguard funds. It holds a

separate, safeguarding account with Barclays Bank Plc. The firm confirms

that Barclays has no right of set off against its client account. [Mr Rexstrew]

explained he is responsible for daily reconciliation and the IT system is used

to assist with this. Testing of the reconciliation method was not undertaken,

due to time constraints."

4.128. The compliance report also stated that Premier FX’s accounts had not been

requested as part of the review and suggested they should be checked and verified

separately.

4.129. Barclays also considered Alacrity Payments’ business plan as part of its January

2015 EDD report. It did so on the basis that Alacrity was still listed as an agent of

Premier FX but was being de-registered. The business plan, which Mr Rexstrew had

sent to Barclays in June 2013, contained a section called “Safeguarding” which

stated that:

"Both Premier FX and Alacrity will be banking with Barclays and will have

correctly identified client accounts ring fenced from office accounts. A letter

of instruction from both firms have been passed to Barclays which has

responded to the company that these are dedicated client accounts and will

not be called into account should either company face financial challenges."

4.130. No consideration appears to have been given during the 2015 EDD review as to

how Alacrity Payments or the fact that Mr Rexstrew was intending to set up and

run a separate firm would affect Mr Rexstrew’s conduct of Premier FX’s business.

4.131. The EDD review template contained a “Minimum Standards Check List” which

required confirmation of whether each of the standards within the check list had

been met by Premier FX. In response to whether Premier FX had “robust internal

controls to segregate client funds from company funds" the EDD report prepared

in January 2015 stated “Yes”. The EDD report further recorded that Premier FX was

authorised by the Authority as an API and that it held and operated currency

accounts separate from the MSB’s ‘office’ accounts and one or more safeguarding

accounts but did not provide any further detail of how Barclays assessed that

Premier FX’s controls were robust. The document submitted to the FMRF on 13

February 2015 stated in respect of the requirement that Premier FX have robust

internal controls of client funds: “Met - Segregated accounts in place”.

4.132. Barclays had no record of receiving a letter of instruction from Premier FX regarding

the status of the funds in the Client Account (GBP) and the Kenyan Shillings

Account. However, Barclays’ customer agreement with Premier FX applied to all of

Premier FX’s accounts. The customer agreement included a clause to the effect that

Barclays will not set off any credit balances on an account in circumstances where

the account is designated as a client account. As the Client Account (GBP) and the

Kenyan Shillings Account had the word “Client” in the account name, it was clear

to Barclays that the account had therefore been designated by Premier FX as a

client account and as such, it held balances in the account on behalf of its

customers. Barclays would therefore not have exercised, nor did it exercise, any

right of set off against these accounts.

April 2016 EDD review

4.133. Barclays scheduled a further EDD Review for April 2016. The EDD Report prepared

for the review recorded that Premier FX had 1,500 active private clients and 650

active corporate clients. It stated that Premier FX had “6 GBP & 35 currency

accounts”, precisely the same numbers and description used in the January 2015

EDD Report.

4.134. The FMRF was informed in April 2016 that Premier FX did not meet Barclays’

minimum standards since it did not meet Barclays’ minimum NTA threshold.

However, it was recommended that Barclays carry on with the relationship given

Mr Rexstrew’s proposal to reinvest the sale proceeds of Alacrity Payments

(£50,000) and Premier FX’s 2016 profit (€220,000).

4.135. On the check list, the April 2016 EDD report assessed that Premier FX met the

requirement to have “robust internal controls to segregate client funds from

company funds”. The EDD report recorded that Premier FX was authorised by the

Authority as an API and that it held and operated currency accounts separate from

the MSB’s ‘office’ accounts and one or more safeguarding accounts. The document

submitted to the FMRF on 18 April 2016 stated in respect of the requirement that

Premier FX have robust internal controls of client funds: “Met - Segregated

accounts in place”. No further reasoning was given.

4.136. The results of the April 2016 EDD Review were submitted to the FMRF for approval

on 25 April 2016. Whilst the EDD review was substantially complete, the review by

an independent compliance consultant on Premier FX’s controls had not yet been

issued. As a result, the FMRF stated that Premier FX should be considered again by

the FMRF once the independent compliance review was made available.

4.137. Following the issuance of the independent compliance review, an updated EDD

report was produced in September 2016. The September 2016 EDD report largely

reproduced the contents of the April 2016 EDD report. The report stated in error

that Premier FX had “6 GBP & 35 currency accounts” (the same figures given in the

January 2014 and April 2016 EDD Reports). In fact, by this time, Premier FX held

an additional pounds sterling account and 20 additional currency accounts.

4.138. The September 2016 EDD report included the same conclusion that Premier FX had

robust internal controls in respect of its segregation of client funds. Similarly, the

EDD report further recorded that Premier FX was authorised by the Authority as an

API and that it held and operated currency accounts separate from the MSB’s ‘office’

accounts and one or more safeguarding accounts. The document submitted to the

FMRF on 23 September 2016 stated in respect of the requirement that Premier FX

have robust internal controls of client funds: “Met - Segregated accounts in place”.

No further reasoning was provided. The independent compliance report also did not

consider Premier FX’s safeguarding or segregation systems.

4.139. The September 2016 EDD report stated that Premier FX’s NTA had increased to

€749,000. This figure appears to have been based on figures recorded in Premier

FX’s abbreviated unaudited accounts for the year ended 31 December 2015, a copy

of which appears to have been provided to Barclays for the purposes of the

September 2016 EDD Review. These accounts were filed at Companies House on

4.140. The accounts recorded that Premier FX’s current assets (stated to be cash at bank)

had fallen from €8,476,522 at 31 December 2014 to €2,613,993 at 31 December

2015. Despite this, its net assets were stated to have grown during the same period

from €414,400 to €749,146.

4.141. No comment was made in the September 2016 EDD Review as to any consideration

given by Barclays to how these figures had been reached, in particular in light of

the fact that they could not have accounted for the sale of Alacrity Payments which,

on the basis of the information provided to Barclays, happened in 2016 and thus

could not have affected the financial position of Premier FX at 31 December 2015.

4.142. The September 2016 EDD Report stated simply that Alacrity Payments “has now

been closed”. Barclays could have ascertained, by reference to Alacrity Payments’

Companies House records, that no record of the sale of Alacrity Payments had been

filed and, in fact, no sale of Alacrity Payments ever transpired.

4.143. When the FMRF met to consider the matter in October 2016, the committee agreed

to retain Premier FX as a client and review it again in 2017. At the same meeting,

the FMRF agreed that Premier FX could open bank accounts for a joint venture

between Premier FX and another company.

4.144. Although the FMRF requested that Premier FX be reviewed again in 2017, and

Barclays’ policies provided for an annual review, the next EDD review for Premier

FX did not take place until 18 April 2018, over 18 months later. According to

Barclays, the reason for the delay was due in part to delays in the preparation of

the independent compliance review by the external third party instructed by

Premier FX.

4.145. In total, Premier FX caused the delay of three AML/EDD reviews during the relevant

period by failing to produce an independent report in a timely manner. As well as

the lack of a review in 2017:

(1)
no AML review was finalised in 2014 for this reason, although the review

was completed in January 2015 (see paragraph 4.119 above); and

(2)
the EDD review scheduled for April 2016 could not happen as the

independent compliance report had not yet been delivered (see paragraph

4.136 above). Barclays had been told it was completed in March 2016 and

agreed to defer the completion of the EDD review. The independent

compliance report was in fact not finalised until 16 May 2016 and the EDD

review was not completed until 3 October 2016.

4.146. A report from an independent compliance consultant was obtained for the purposes

of the April 2018 EDD Review. This report considered the AML controls of Premier

FX but specifically stated that reviews of its safeguarding and capital arrangements

were “out of scope” and provided no information on them. This was consistent with

Barclays’ recommended scope for independent external reviews, which did not

specify safeguarding should be within the scope of the review.

4.147. On the check list, the April 2018 EDD report assessed that Premier FX met the

requirement to have “robust internal controls to segregate client funds from

company funds”. The EDD report further recorded that Premier FX was authorised

by the Authority as an API and that it held and operated currency accounts separate

from the MSB’s ‘office’ accounts and one or more safeguarding accounts. The

document submitted to the FMRF in April 2018 stated in respect of the requirement

that Premier FX have robust internal controls of client funds: “Met - Segregated

accounts in place”. No further reasoning was provided.

4.148. By the time of the April 2018 EDD Review, the report was still erroneously stating

that Premier FX had “6 GBP & 35 currency accounts” whereas in reality it held seven

pounds sterling accounts and 59 additional currency accounts.

4.149. On 23 May 2018, the Authority wrote to Mr Rexstrew to inform him that Premier

FX had been granted authorisation to carry on payment services activities as an

API under the PSRs 2017. The letter noted that the Authority had reviewed Premier

FX's application and required Premier FX to make a small number of changes to its

procedures. While these changes were not related to safeguarding, the Authority

reminded Premier FX of its safeguarding obligations under the PSRs. Mr Rexstrew

sent a copy of the letter to Barclays on 30 May 2018 along with a number of other

documents requested as part of the EDD process.

4.150. When the new directors of Premier FX contacted Barclays on 31 July 2018, Barclays

was unable to immediately confirm which accounts held by Premier FX were

designated client accounts and responded three days later that it was “still looking

to retrieve account opening documentation”. Despite being chased for a response,

Barclays took until 9 August 2018 to confirm that there were only two designated

client accounts. The Authority considers that this delay in ascertaining what client

accounts existed indicates that, with the exception of the Client Account (GBP) and

Kenyan Shillings Account, no attempt to identify any additional client accounts had

previously been made.

5.
FAILINGS

5.1.
The regulatory provisions relevant to this Notice are referred to in Annex A.

5.2.
Principle 2 of the FCA’s Principles for Businesses requires that a firm must conduct

its business with due skill, care and diligence.

5.3.
On the basis of the facts and matters set out above, and for the reasons set out

below, the Authority considers that, in respect of its oversight and monitoring of its

business relationship with Premier FX, Barclays breached Principle 2 between

February 2011 and August 2018.

5.4.
Throughout the relevant period, Barclays was required to establish, implement and

maintain adequate policies and procedures sufficient for countering the risk that it

might be used to further financial crime. Barclays correctly recognised that clients

classified by it as MSBs presented high financial crime risks and, as a result,

implemented policies in respect of MSBs that were designed to reduce these risks.

These included policies requiring minimum standards which any current or

prospective MSB customer of Barclays had to fulfil and regular reviews of the MSB

customer to ensure that the minimum standards were met. As Barclays recognised,

measures such as ensuring, on an ongoing basis, that the MSB had suitable

compliance systems and maintained robust internal controls reduced the risk that

its MSB customer may be involved in financial crime, thereby exposing Barclays to

the risk of facilitating financial crime.

5.5.
However, in respect of its relationship with Premier FX, Barclays failed to conduct

its business with due skill, care and diligence, in that:

(1)
Whilst Barclays conducted nine AML/EDD reviews through the relevant

period, Barclays failed to finalise in a timely manner reviews of Premier FX

in two calendar years, in breach of its own policies. This was due to delays

in Premier FX providing Barclays with the requisite independent compliance

reports, yet Barclays did not consider whether these delays should have

prompted further questions to Premier FX’s management.

(2)
Much of the information contained in the AML/EDD review reports prepared

for Premier FX by Barclays was repeated and included information cut and

pasted from previous reports, which included errors that Barclays did not

identify and rectify.

(3)
Throughout the relevant period, Barclays failed to take sufficient steps to

understand the framework of accounts Premier FX operated and to

challenge information it received. In particular:

(a)
Barclays allowed Premier FX to open accounts on behalf of Global

Currency Service, an API owned and operated by Mr Rexstrew. These

“re” accounts were opened in Premier FX’s name and operated by

Premier FX on behalf of Global Currency Service. In opening these

accounts for Premier FX, Barclays failed to consider or confirm with

Premier FX Mr Rexstrew’s use of these “re” accounts and how this

affected his conduct of Premier FX’s business;

(b)
Some of the records of the AML/EDD reviews did not accurately

reflect the correct number of bank accounts operated by Premier FX.

By the time of the final review in April 2018, the EDD report under-

reported the number of accounts by 25;

(c)
Barclays failed to identify that, or to seek explanation from Premier

FX as to, Premier FX making significant numbers of payments to

banks based in the US, despite Mr Rexstrew having told Barclays that

Premier FX had no US-based clients (although the Authority

recognised that these transactions may have been payments made

on the instructions of non-US based clients); and

(d)
Barclays allowed Premier FX to open accounts on behalf of Alacrity

Payments but failed to identify that these accounts continued to be

used by Premier FX after Barclays was aware that Alacrity Payments

was not operating. Barclays did not make any enquiries to establish

the ongoing purpose of Mr Rexstrew’s use of these “re” accounts

after it had been told that Alacrity Payments had been sold by April

2016.

(4)
From May 2013, the MSB Minimum Standards were introduced as one

element of Barclays’ oversight of MSB customers. The Minimum Standards

included a checklist, which required the reviewer to confirm (by yes or no)

that an MSB met certain threshold criteria. One such criterion was to confirm

that the MSB was appropriately authorised or registered. Another was to

confirm that the MSB had “robust internal controls to segregate client funds

from company funds”. Despite this being a minimum requirement from May

2013, Barclays did not complete a review that included a confirmation that

this criterion was met until January 2015.

(5)
In practice, the reviewer considered this criterion to be fulfilled by confirming

that the MSB held and operated currency accounts separate from the MSB’s

‘office’ accounts and one or more safeguarding accounts. Barclays therefore

did not properly consider the number or types of accounts Premier FX held

with it.

(6)
In addition, in its AML/EDD reviews, Barclays did not ask questions

regarding Premier FX’s use of its office account.

(7)
Although Barclays received information from Mr Rexstrew regarding his

plans for the business and the purpose of the accounts Premier FX held at

Barclays, including the Global Currency Service and Alacrity Payments “re”

accounts, it did not seek further confirmation about how those accounts

operated relative to its understanding of the business of Premier FX.

(8)
Barclays failed to identify that Premier FX’s controls were deficient. In

particular:

(a)
Despite concerns having been expressed in 2013 by a Barclays

compliance officer about Mr Rexstrew’s role, and suggestions made

that details should be obtained as to how he delegated and managed

the business, the only substantive step taken was Mr Rexstrew’s

replacement as MLRO and no further investigations of Mr Rexstrew’s

management of the business were conducted by, or on behalf of,

Barclays; and

(b)
Barclays’ consideration of Premier FX’s controls failed to take into

account apparently rapid growth in its turnover when assessing

whether its internal controls were sufficiently robust.

(9)
Despite identifying in April 2016 that Premier FX did not meet its minimum

NTA threshold, Premier FX persuaded Barclays to keep the relationship open

on the basis that the proceeds from the sale of Alacrity Payments and its

expected profit for 2016 would be reinvested in Premier FX. Barclays was

subsequently told by Mr Rexstrew that Alacrity Payments had been sold and,

in September 2016, Barclays assessed that Premier FX met its minimum

NTA threshold. This assessment was repeated with the same result in 2018.

However, in making these assessments:

(a)
Barclays failed to appreciate that the financial information provided

to it by Premier FX in support of its improved capital position could

not have taken account of the sale of Alacrity Payments since it

covered a period prior to the sale;

(b)
Barclays failed to seek confirmation of the sale of Alacrity Payments

and/or the receipt of funds as a result, despite publicly available

information suggesting that no sale had been made and that Alacrity

Payments was dissolved in May 2017 without having been sold;

(c)
Barclays failed to appreciate, and/or failed to make reasonable

enquires into the fact, that the financial information provided to it by

Premier FX showed unusual financial activity in its accounts; and

(d)
As a result, Barclays failed to appreciate, and/or make reasonable

enquiries into the fact, that Mr Rexstrew had seemingly provided

Barclays with false information in relation to the sale of Alacrity.

5.6.
Taking all of the above points into consideration together, the Authority considers

that these findings demonstrate Barclays’ oversight and monitoring of Premier FX,

throughout the relevant period, failed to include appropriate further enquiries when

it received information from Premier FX to ensure that Premier FX’s actual business

activity aligned with Barclays’ expectation of its business activity based on its

understanding of Premier FX and that Barclays failed to identify that Premier FX’s

controls were deficient.

6.
SANCTION

Financial penalty

6.1.
For the reasons set out in this Notice, the Authority has found that Barclays

breached Principle 2. The Authority has considered the disciplinary and other

options available to it and has concluded that a financial penalty is the appropriate

sanction in the circumstances of this case.

6.2.
The Authority’s policy for imposing a financial penalty is set out in Chapter 6 of

DEPP. In respect of conduct occurring on or after 6 March 2010, the Authority

applies a five-step framework to determine the appropriate level of financial

penalty. DEPP 6.5A sets out the details of the five-step framework that applies in

respect of financial penalties imposed on firms.

Step 1: disgorgement

6.3.
Pursuant to DEPP 6.5A.1G, at Step 1 the Authority seeks to deprive a firm of the

financial benefit derived directly from the breach where it is practicable to quantify

this.

6.4.
The Authority has not identified any financial benefit that Barclays derived directly

from its breach.

6.5.
Step 1 is therefore £0.

Step 2: the seriousness of the breach

6.6.
Pursuant to DEPP 6.5A.2G, at Step 2 the Authority determines a figure that reflects

the seriousness of the breach. Where the amount of revenue generated by a firm

from a particular product line or business area is indicative of the harm or potential

harm that its breach may cause, that figure will be based on a percentage of the

firm’s revenue from the relevant products or business area.

6.7.
The Authority considers that the revenue generated by Barclays is indicative of the

harm or potential harm caused by its breach. The Authority has therefore

determined a figure based on a percentage of Barclays’ relevant revenue. Barclays’

relevant revenue is the revenue derived by Barclays from its relationship with

Premier FX during the period of the breach. The period of Barclays’ breach was

from February 2011 to August 2018. The Authority considers Barclays’ relevant

revenue for this period to be £1,197,677.

6.8.
In deciding on the percentage of the losses that form the basis of the Step 2 figure,

the Authority considers the seriousness of the breach and chooses a percentage

between 0% and 20%. This range is divided into five fixed levels which represent,

on a sliding scale, the seriousness of the breach; the more serious the breach, the

higher the level. For penalties imposed on firms there are the following five levels:

Level 1 – 0%

Level 2 – 5%

Level 3 – 10%

Level 5 – 20%

6.9.
In assessing the seriousness level, the Authority takes into account various factors

which reflect the impact and nature of the breach, and whether it was committed

deliberately or recklessly. DEPP 6.5A.2G(11) lists factors likely to be considered

‘level 4 or 5 factors’. Of these, the Authority considers the following factor to be

relevant:

(1)
Significant loss was caused to many customers of Premier FX who had paid

funds into Premier FX’s accounts prior to its administration. Taking into

account the sums to be distributed under the plan (at a rate of 9.815p in

the pound), their average individual loss was approximately £60,000 and 32

customers lost over £100,000.

6.10. DEPP 6.5A.2G(12) lists factors likely to be considered ‘level 1, 2 or 3 factors’. Of

these, the Authority considers the following factors to be relevant:

(1)
The breach was committed negligently and there is no evidence that it was

committed deliberately or recklessly.

6.11. The Authority also considers that the following factors are relevant:

(1)
The breach had an effect on particularly vulnerable people who, in particular

included retirees who had paid the proceeds of property sales or

investments to Premier FX. Several individuals lost life-changing sums of

money following Premier FX’s insolvency, including customers who were

unable to purchase properties that they had intended to buy.

6.12. Taking all of these factors into account, the Authority considers the seriousness of

the breach to be level 3 and so the Step 2 figure is 10% of £1,197,677.

6.13. Step 2 is therefore £119,767.

Step 3: mitigating and aggravating factors

6.14. Pursuant to DEPP 6.5A.3G, at Step 3 the Authority may increase or decrease the

amount of the financial penalty arrived at or after Step 2, but not including any

amount to be disgorged as set out in Step 1, to take into account factors which

aggravate or mitigate the breach.

6.15. The Authority considers that the following factors aggravate the breach:

(1)
The Authority has imposed significant financial penalties on Barclays on

previous occasions in relation to misconduct:

(a)
In August 2009, the Authority fined Barclays £2,450,000 for failing

to submit accurate transaction reports in respect of an estimated

57.5 million transactions;

(b)
In January 2011, the Authority fined Barclays £7,700,000 for failing

to take reasonable care to ensure the suitability of its advice

regarding certain funds for customers entitled to rely on its

judgement. The customers were typically in or near retirement and

included inexperienced investors, and a number of unsuitable sales

were made;

(c)
In June 2012, the Authority fined Barclays £59,500,000 for

misconduct relating to its submissions of rates which formed part of

LIBOR;

(d)
In May 2014, the Authority fined Barclays £26,033,500 for failing to

manage conflicts of interest, as well as systems and controls failings,

in relation to the Gold Fixing;

(e)
In September 2014, the Authority fined Barclays £37,745,000 for

failing to protect approximately £16.5 billion of customers’ safe

custody assets between 1 November 2007 and 24 January 2012;

(f)
In May 2015, the Authority fined Barclays £284,432,000 for failing

to take reasonable care to organise and manage its FX business

effectively;

(g)
In November 2015, the Authority fined Barclays £72,069,400 for

failing to minimise the risk of financial crime in connection with a

multi-billion pound transaction; and

(h)
In December 2020, the Authority fined Barclays Bank UK PLC,

Barclays and Clydesdale Financial Services Limited £26,056,400 for

failing to show forbearance and due consideration to business and

retail customers when they fell into arrears or experienced financial

difficulties.

6.16. The Authority considers that Barclays’ agreement to make an ex gratia payment to

be distributed among the former customers of Premier FX who lost money as a

result of its activities is a factor which mitigates the breach.

6.17. Having taken into account these aggravating and mitigating factors, the Authority

considers that the Step 3 figure remains the same as the Step 2 figure.

6.18. Step 3 is therefore £119,767.

Step 4: adjustment for deterrence

6.19. Pursuant to DEPP 6.5A.4G, if the Authority considers the figure arrived at after Step

3 is insufficient to deter the firm who committed the breach, or others, from

committing further or similar breaches, then the Authority may increase the

penalty.

6.20. The Authority does not consider that the Step 3 figure of £119,767 represents a

sufficient deterrent to Barclays and others in the circumstances of this case.

6.21. Banks play an important role in the fight against financial crime in the financial

services sector and the Authority expects them, having established a reasonable

risk and control framework, to adhere to that framework and act with appropriate

due diligence in monitoring high-risk customers, which include MSBs. The Step 3

figure of £119,767 is significantly less than the amount of revenue Barclays earned

from Premier FX and substantially less than the level of harm caused to Premier

FX’s customers.

6.22. The Authority therefore considers that in order to achieve credible deterrence the

Step 3 figure should be increased by £1,000,000. In determining the appropriate

increase, the Authority has had regard to the fact that Barclays has agreed to make

an ex gratia payment for distribution among the former customers of Premier FX

who lost money as a result of its activities. Had it not been for this agreement, the

Authority would have determined that the appropriate increase at Step 4 would

have been significantly more.

6.23. Step 4 is therefore £1,119,767.

Step 5: settlement discount

6.24. Pursuant to DEPP 6.5A.5G, if the Authority and the firm on whom a penalty is to

be imposed agree the amount of the financial penalty and other terms, DEPP 6.7

provides that the amount of the financial penalty which might otherwise have been

payable will be reduced to reflect the stage at which the Authority and the firm

reached agreement. The settlement discount does not apply to the disgorgement

of any benefit calculated at Step 1.

6.25. The Authority and Barclays reached agreement at Stage 1 and so a 30% discount

applies to the Step 4 figure.

6.26. Step 5 is therefore £783,837. Rounded down to the nearest £100, this is £783,800.

6.27. The Authority therefore hereby imposes a total financial penalty of £783,800 on

Barclays for breaching Principle 2.

7.
PROCEDURAL MATTERS

7.1.
This Notice is given to Barclays under and in accordance with section 390 of the

Act.

7.2.
The following statutory rights are important.

Decision maker

7.3.
The decision which gave rise to the obligation to give this Notice was made by the

Settlement Decision Makers.

Manner and time for payment

7.4.
The financial penalty must be paid in full by Barclays to the Authority no later than

11 March 2022.

If the financial penalty is not paid

7.5.
If all or any of the financial penalty is outstanding on 14 March 2022, the Authority

may recover the outstanding amount as a debt owed by Barclays and due to the

Authority.

7.6.
Sections 391(4), 391(6) and 391(7) of the Act apply to the publication of

information about the matter to which this Notice relates. Under those provisions,

the Authority must publish such information about the matter to which this notice

relates as the Authority considers appropriate. The information may be published

in such manner as the Authority considers appropriate. However, the Authority

may not publish information if such publication would, in the opinion of the

Authority, be unfair to you or prejudicial to the interests of consumers or

detrimental to the stability of the UK financial system.

7.7.
The Authority intends to publish such information about the matter to which this

Final Notice relates as it considers appropriate.

Authority contacts

7.8.
For more information concerning this matter generally, contact Mark Lewis at the

Authority (direct line: 020 7066 8442/email: mark.lewis2@fca.org.uk).

Head of Department (Acting)

Financial Conduct Authority, Enforcement and Market Oversight Division

ANNEX A

RELEVANT STATUTORY PROVISIONS

1.
The Authority’s operational objectives, set out in section 1B(3) of the Act, include

securing an appropriate degree of protection for consumers.

2.
Section 206(1) of the Act states:

“If the appropriate regulator considers that an authorised person has contravened

a relevant requirement imposed on the person, it may impose on him a penalty, in

respect of the contravention, of such amount as it considers appropriate."

RELEVANT REGULATORY PROVISIONS

3.
Principle 2 of the Principles for Businesses (a rule made by the Authority under the

Act) requires that “A firm must conduct its business with due skill, care and

diligence.”

4.
SYSC 6.1.1R requires that “A firm must establish, implement and maintain

adequate policies and procedures sufficient… for countering the risk that the firm

might be used to further financial crime.”

5.
SYSC 6.3.1R requires that “A firm must ensure that the policies and procedures

established under SYSC 6.1.1R include systems and controls that…(2) are

comprehensive and proportionate to the nature, scale and complexity of its

activities”.

6.
Financial crime is defined in the Authority’s Handbook (in accordance with section

1H of the Act) as “any kind of criminal conduct relating to money or to financial

services or markets, including any offence involving: (a) fraud or dishonesty; or

(b) misconduct in, or misuse of information relating to, a financial market; or (c)

handling the proceeds of crime; or (d) the financing of terrorism”.

DEPP

7.
Chapter 6 of DEPP, which forms part of the Authority’s Handbook, sets out the

Authority’s statement of policy with respect to the imposition and amount of

financial penalties under the Act.

The Enforcement Guide

8.
The Enforcement Guide sets out the Authority’s approach to exercising its main

enforcement powers under the Act.

9.
Chapter 7 of the Enforcement Guide sets out the Authority’s approach to exercising

its power to impose a financial penalty.