Barclays Capital agreed today to pay a $15 million penalty to the Securities and Exchange Commission for failing to maintain an adequate internal compliance system. As a result, the bank ran afoul of federal securities laws after its U.S. wealth management business acquired the advisory business of Lehman Brothers in 2008. 

Investment advisers are required to adopt and implement written compliance policies and procedures reasonably designed to prevent violations of the Investment Advisers Act and its rules. An SEC examination and subsequent investigation, however, found that Barclays failed to enhance its compliance infrastructure to integrate and support the acquisition and rapid growth of the advisory business from Lehman. The deficiencies in its compliance systems contributed to other securities law violations by Barclays.

“When a firm acquires an advisory business, it must devote the attention and resources necessary to build a robust compliance system,” Julie Riewe, co-chief of the SEC Enforcement Division’s Asset Management Unit, said in a statement. “Barclays failed to establish this critical compliance foundation when it acquired Lehman’s advisory business, and as a result subjected its clients to a host of improper practices and inadequate disclosures.”

According to the SEC, Barclays failed to adopt and implement written policies and procedures and maintain certain required books and records to prevent the other violations. For example, Barclays executed more than 1,500 principal transactions with its advisory client accounts without making the required written disclosures or obtaining client consent.  

Barclays also earned revenues and charged commissions and fees that were inconsistent with its disclosures for 2,785 advisory client accounts, the SEC stated. Barclays also violated custody provisions of the Advisers Act, and underreported its assets under management by $754 million in 2011, resulting in overcharges and client losses of approximately $472,000 and additional revenue to Barclays of more than $3.1 million. Barclays has since reimbursed or credited its affected clients approximately $3.8 million, including interest. 

In addition to the $15 million penalty, Barclays agreed to retain an independent compliance consultant to internally address the violations. Without admitting or denying the findings, Barclays agreed to be censured and must cease and desist from committing or causing any further such violations. 

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