Financial Conduct Authority  

FCA fines broker £642k in second cum-ex related case

FCA fines broker £642k in second cum-ex related case

A brokerage has been fined £642,000 by the Financial Conduct Authority for having deficient anti money laundering systems and controls in relation to cum ex trading. 

Sunrise Brokers was fined for having deficient systems in place to identify and mitigate the risk of facilitating fraud and money laundering.

This was the second case brought by the FCA in relation to cum-ex trading, dividend arbitrage and withholding tax reclaim schemes, amid an investigation into the involvement of UK based brokers in cum-ex schemes which is continuing.

The cum ex scandal was uncovered in Europe by a group of journalists in 2017.

Cum ex trading involved trading of shares on or just before the last dividend date, which would create confusion over who owned the shares when the dividend was paid and effectively allowed both parties to claim rebates on withholding tax.

The scandal involved a network of banks, stock traders, and lawyers and is estimated to have cost European treasuries €150bn (£128bn).  

Sunrise Brokers' fine was in relation to business introduced by the Solo Group between February 17, 2015 and November 4, 2015.

The FCA found the firm’s trading during the period showed a pattern of purported trades which the regulator said was highly suggestive of financial crime. 

“The trading appears to have been carried out to allow the arranging of withholding tax reclaims in Denmark and Belgium,” it said.

Two instances were highlighted where the firm failed to identify or escalate potential financial crimes concerns or suspicions when it should have done.

This included Sunrise executing a trade on behalf of a broker client, introduced by the Solo Group, at nearly twice the prevailing market price of the stock.

The group also accepted a payment from a UAE-based entity connected to the Solo Group in respect of outstanding debts owed to them by clients of Solo.

Mark Steward, the FCA's executive director of enforcement and market oversight, said: "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.”

The FCA found that Sunrise failed to exercise due skill, care and diligence in applying anti-money laundering policies and procedures, and failed properly to assess, monitor and mitigate the risk of financial crime in relation to clients introduced by the Solo Group and the purported trading.

The action taken by the FCA is part of a range of measures taken in connection with cum-ex dividend arbitrage cases, and withholding tax schemes, including engagement with EU and global law enforcement authorities.

sally.hickey@ft.com