Goldman Sachs has been fined £17.5m ($27m) by the UK's financial regulator following a five-month investigation into the investment bank's international business initiated in the wake of fraud charges against the company in the US.
The fine, confirmed by the Financial Services Authority on Thursday, is a blow to Goldman's efforts to put the high-profile case behind it following the bank's settlement with the US Securities and Exchange Commission probe in July for $550m.
The FSA opened its investigation into the bank in April after the SEC charged Goldman with misleading investors in a complex mortgage-backed security known as Abacus. The SEC claimed that Goldman had failed to disclose that a hedge fund that was betting against the security had selected some of the mortgage loans included in the portfolio, costing investors as much as $1bn.
The largest fine handed down by the UK regulator came three months ago, when JPMorgan paid a £33.3m for failing to keep client money in separate accounts.
Goldman, the world's best-known investment bank, has seen its reputation tarnished in recent months as questions continue to swirl over whether it favoured the interests of some clients at the expense of others during the financial crisis.
The bank's business model is also under pressure amid volatile markets and regulatory reforms that have forced it to shut some of its highly profitable "proprietary" trading operations.
On Wednesday it emerged that KKR, the private equity firm, is in early talks with individuals in Goldman Sachs' proprietary trading group that could lead to the hiring of a number of Goldman's key people.
In settling the Abacus case with the SEC, Goldman said it made a "mistake," but it neither admitted nor denied the agency's allegations. Fabrice Tourre, the Goldman trader whose boastful emails about the deal were at the centre of the complaint, is still fighting charges brought against him by the SEC.
The fine levied on the bank by the FSA say that it is not based specifically on the Abacus transaction, but is the result of its investigation into the bank's business practices in London sparked by the SEC allegations.
The FSA's decision to launch its own inquiry, announced four days after the SEC case, was questioned by some legal experts at the time given that the Abacus deal was structured in the US. However, the SEC alleged that one of the biggest losers was IKB, the German bank.
Margaret Cole, the FSA's managing director of enforcement and financial crime, said: "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.
Mr Tourre's attorney did not respond to a request for comment. Goldman Sachs also declined to comment.
The FSA said Goldman co-operated fully and agreed to settle at an early stage. In doing so it qualified for a 30 per cent discount. Without the discount the fine would have been £25m.