By PAUL O’DONOGHUE, Senior Correspondent
THE UK’s Financial Conduct Authority (FCA) has fined Mako Financial Markets Partnership £1.66 million for failing to implement effective financial crime controls related to cum-ex trading.
This is the FCA’s eighth enforcement case on cum-ex trading, bringing total fines in the area to more than £30 million.
Mako’s Role
Between December 2013 and November 2015, Mako executed over-the-counter equity trades for Solo Group clients. These trades totaled £68.6 billion in Danish equities and £23.6 billion in Belgian equities. The firm earned approximately £1.45 million in commissions.
The FCA found the trading was circular, which strongly suggested financial crime. “It appears to have been carried out to allow the arranging of withholding tax (WHT) reclaims in Denmark and Belgium,” the FCA said. Several individuals have since been convicted in Denmark.
Mako also overlooked red flags in other transactions tied to the Solo Group. In one instance, a set of trades had no clear purpose. They led to a €2 million loss for the Solo Group’s controller while benefiting his associates. Additionally, Mako accepted payments from a UAE-based third party to cover debts owed by Solo Group clients. The firm did not conduct due diligence, which increased the risk of money laundering.
What Is Cum-Ex Trading?
Cum-ex trading involves buying and selling shares just before the last cum-dividend date—the point when a dividend is about to be paid. In some jurisdictions, this allows traders to claim a tax rebate on withholding tax, sometimes without entitlement.
Withholding tax (WHT) is deducted from income at the source and paid to the government. Many securities that generate dividends or interest are subject to WHT. However, some international tax treaties allow foreign investors to claim a rebate.
Penalty and Settlement
Mako did not contest the FCA’s findings and agreed to settle. As a result, the firm qualified for a 30% reduction in its fine under the FCA’s Settlement Discount Scheme.
Therese Chambers, joint executive director of enforcement and market oversight at the FCA, said: “Mako failed to spot clear red flags and facilitated highly suspicious trading that made it vulnerable to being used to support financial crime.
“For UK financial services to grow and compete, investors need to have trust in it. That’s why it is vital we stamp out these unacceptable practices, which risk the reputation and integrity of UK markets.”
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