FSA slaps £17.5 million fine on Goldmans

(Update) The FSA has fined Goldman Sachs £17.5 million for weaknesses in controls which resulted in failure to provide FSA with appropriate information.

The fine relates to Goldman Sachs' failure to notify the FSA in relation to an investigation by the American Securities and Exchange Commission into the sale of mortgage backed securities which the bank has settled  by making a payment of some $550 millon in July.

The charges focus on the sale of one security known as Abacus which the SEC had claimed Goldman sold as a viable investment even though John Paulson, the legendary hedge fund manager, was shorting the instrument through Goldmans and was involved in choosing the underlying securities.

The regulator said Goldmans breached FSA principles and added: 'the fine relates to GSI’s failure to ensure that it had in place adequate systems and controls to enable it to comply with its UK regulatory reporting obligations.'

Margaret Cole, managing director of enforcement and financial crime, said: 'This penalty should send a message – particularly to the senior management of large institutions – of the need to have their firm’s UK reporting obligations at the forefront of their minds.'

'We have repeatedly stressed the importance of firms self-reporting regulatory issues to the FSA in a timely way.  GSI did not set out to hide anything, but its defective systems and controls meant that the level and quality of its communications with the FSA fell far below what we expect of an authorised firm. 

'The fact that senior business people at GSI in London knew about Mr Tourre’s Wells Notice, but did not consider the obvious regulatory implications for GSI is very disappointing. Had GSI complied with its UK obligations, the outcome for it would have been very different.'

The FSA also revealed Goldman Sachs' original fine was £25 million but the investment bank qualified for a 30% discount to the fine because it fully co-operated with the regulator and settled early. The FSA also said the investigation found that Goldman did not deliberately withhold any information from the regulator.