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Goldman Sachs fined $22m by regulators over systems failure

FINRA and SEC issue double whammy

Investment bank Goldman Sachs has been hit with a $22 million fine by regulators over its failure to monitor analyst communications and its trading following key discussions.

Banking industry regulator FINRA issued an $11m fine as it said Goldman Sachs had failed to supervise equity analyst communications and monitor trading in advance of published research changes.

The other $11m fine came from the SEC, the US Securities and Exchange Commission, which said that "higher-risk trading and business strategies require higher-order controls", somethign the bank had failed to deliver.

Brad Bennett, FINRA executive VP, said Goldman's trading huddles - in which analysts met traders to share ideas - "created an environment of heightened risk in which material non-public information concerning analysts' published research could be disclosed to its clients".

He added that Goldman Sachs "did not have an adequate system in place to monitor client trading in advance of changes in its published research".

FINRA said that the huddles, often conducted on the phone, created the "significant risk" that analysts would disclose non-public information. "Despite this risk, Goldman did not have adequate controls in place to monitor communications in trading huddles and by analysts after the huddles," it said.

The bank had initially used a paper-based system, but then created a system that filtered out some of the important areas, the regulator argued.

Goldman had also "failed to establish an adequate system to monitor for possible trading in advance of research rating or conviction list changes", FINRA said. Again, the tool in place filtered out some of the key areas.

Goldman has neither admitted nor denied the accusations, but has settled the cases and agreed to sign a statement of facts.


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