Today, the U.K.’s Financial Services Authority (FSA) announced that it has fined Goldman Sachs International (GSI), the London-based affiliate of the Goldman Sachs Group, for breaches of Principles 2, 3 and 11 of the FSA’s Principles for Businesses.
FSA reports that the £17.5 million fine resulted from the failure of GSI to have adequate internal controls to enable it to comply with U.K. regulatory reporting obligations, specifically “the failure take reasonable care to organize and control its affairs responsibly and effectively with adequate policies, procedures, systems and controls in relation to external communications.” GSI failed to consider the obligation to notify FSA of matters relating to the SEC’s investigation and subsequent charges against Goldman Sachs & Co. (GSC), the U.S.-based affiliate of Goldman Sachs Group, regarding the structuring and marketing of the Abacus 2007-AC1 synthetic collateralized debt obligation (Abacus CDO).
Following the SEC’s preliminary investigation with respect to Abacus CDO in August 2008, the FSA announced that also had initiated an investigation into GSI’s activities with respect to the Abacus CDO. FSA asserts that GSI, as an affiliate of GSC, should have considered the potential regulatory implications of the SEC investigation on FSA’s investigation in the U.K., resulting in a “failure to conduct its business with due skill, care and diligence in relation to its regulatory reporting obligations.”
In addition to the failure to maintain adequate controls, the fine also was in response to the failure of GSI to disclose “information of which the FSA would reasonably expect notice and which was reasonably material” to the FSA’s investigation. On September 10, 2009, the SEC issued Wells Notices to each of GSC and Fabrice Tourre, the Executive Director of the Structured Products Group Trading of GSI, informing them of the likelihood of enforcement action against them. GSI failed to inform FSA of these Wells Notices, despite the knowledge of several of its senior managers.
While the FSA did not determine any intent to withhold information by GSI, it did state that GSI had “defective systems and controls” resulting in the “level and quality of its communications with FSA [falling] far below” the level expected by FSA.
On July 15, 2010, GSC announced that it had reached a $550 million settlement with respect to the Abacus CDO. Charges are still pending against Mr. Tourre.