Breakingviews: Staley-Epstein probe goes too easy on Barclays

Jes Staley’s relationship with the late sex offender Jeffrey Epstein is primarily a problem for Staley himself. Yet a UK watchdog’s investigation into the matter, released on Thursday, lets his old employer Barclays off the hook too easily. The troubling message is that boards needn’t challenge scandal-plagued CEOs too much.

Britain’s Financial Conduct Authority (FCA) said on Thursday it would fine Staley 1.8 million pounds and ban him from holding senior positions in the industry. It found that he failed to correct “misleading statements” in a 2019 letter, in which Barclays told the FCA that Staley did not have a close relationship with Epstein, and that the pair had not been in contact since “well before” Staley started as the bank’s CEO in 2015. The American former JPMorgan executive denies any prior knowledge of the sex-trafficking crimes that prosecutors charged Epstein with, and is appealing the FCA’s decision.

Barclays, which is cancelling about 18 million pounds of Staley’s deferred compensation, escapes criticism. At first glance that seems fair. The bank based its letter to the FCA on what Staley had told a few of its board members and executives. If he left out important facts, such as the fact that he and Epstein exchanged emails in 2015 while the bank was recruiting him as CEO, then the fault would seem to fall on him rather than the bank. That’s roughly the FCA’s position.

Yet the relevant board directors and executives could have made more of an effort to uncover these facts. Instead, they took Staley at his word. That seems naïve, even knowing only what they did at the time.

For one thing, Staley had already had a brush with scandal after trying to unmask a whistleblower, for which the FCA and Bank of England fined him 642,000 pounds in 2018. Taking on faith the words of someone who had recently been reprimanded seems questionable.

Second, based on the FCA’s account, it should have already been evident to Barclays in 2019 that Staley had not been totally forthcoming about the Epstein relationship. In 2015, Barclays told a newspaper that the pair did not have “anything resembling a close personal association”, a statement that the FCA reckons was based on information provided by Staley at the time.

That 2015 characterisation seems incompatible with what Staley told a board member in 2019, which included the fact that he had historically seen Epstein as often as every two months and would dine once a year at his former client’s house. The discrepancy, combined with the fact that the then-CEO clearly had an interest in downplaying the links, should have caused the directors to question whether he was a reliable source of information. Instead, they took Staley’s account on faith.

One alternative would have been to launch an independent review into the matter in October 2019, perhaps with the help of outside investigators. Quizzing Staley’s former colleagues and associates, or asking to see his phone records, could have turned up some useful information. Clearly the FCA doesn’t think this was necessary, based on the clean bill of health it has delivered to Barclays. That only decreases the odds that the next board in a similar position will bother to hold its CEO to account either.