FCA issues fines in second case of ‘serious’ cum-ex trading failings
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FCA issues fines in second case of ‘serious’ cum-ex trading failings 12 November 2021UK Reporter: Carmella Haswell
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The UK’s Financial Conduct Authority (FCA) has fined Sunrise Brokers, an interdealer broker and global derivatives specialist, for “serious financial crime control failings” that facilitated fraudulent trading and money laundering related to cum-ex trading that was connected to the Solo Group.
Between February 2015 and November 2015, Sunrise Brokers executed a trade on behalf of a broker client, introduced by the Solo Group, at nearly twice the prevailing market price of the stock. Sunrise then accepted a payment from a United Arab Emirates (UAE)-based entity connected to the Solo Group in respect of outstanding debts owed to them by clients of Solo.
During this period, on behalf of the Solo Group clients, Sunrise Brokers executed purported over-the-counter equity cum-dividend trades to the value of approximately £25.4 billion in Danish equities and £11.2 billion in Belgian equities, and received commission of £466,652 during this time.
The trading appears to have been carried out to allow the arranging of withholding tax reclaims in Denmark and Belgium.
This is the second cum-ex trading case to face the FCA this year, with Sapien Capital being fined £178,000 in May for “serious financial crime control failings” that also facilitated fraudulent trading and money laundering.
The FCA found that Sunrise Brokers failed to exercise due skill, care and diligence in applying anti-money laundering policies and procedures and failed properly to assess, to monitor and to mitigate the risk of financial crime in relation to clients introduced by the Solo Group and the purported trading.
As Sunrise Brokers agreed to resolve all issues of fact and liability, it qualified for a 30 per cent discount under the FCA’s executive settlement procedures.
The action taken is part of a range of measures taken in connection with cum-ex dividend arbitrage cases and withholding tax (WHT) schemes. This has involved proactive engagement with EU and global law enforcement authorities.
The FCA’s investigation into the involvement of UK-based brokers in cum-ex dividend arbitrage schemes is continuing.
Responding to the announcement, Mark Steward, executive director of enforcement and market oversight, says: “Sunrise should not have carried out these self-evidently suspicious trades without proper due diligence. Sunrise’s failings were significant and this outcome demonstrates we will not tolerate firms’ lax controls and that we will work with overseas agencies to ensure London is not viewed as a haven for poor controls and practices.”
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