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FCA fines second company for regulatory breaches in relation to cum-ex trading

Posted by: Gherson White-Collar Crime

In May 2021, Gherson’s criminal litigation, investigations and regulatory team explained how Cum-ex, or dividend arbitrage trading, had been attracting headlines across the globe for some time.

The team initially noted how UK regulators had not, to-date, imposed any sanctions against corporates or individuals who they say have been involved in wrongdoing associated with the trading activity.

What was the first corporate regulatory breach in relation to cum-ex trading?

However, that changed on 6 May 2021, when the UK’s Financial Conduct Authority - FCA announced the first sanction imposed for regulatory breaches arising from their cum-ex investigations, with the issuing of a Final Notice and a £178,000 fine against Sapien Capital Ltd (“Sapien”).

The FCA’s findings included that:

  • Between 10 February 2015 and 10 November 2015 Sapien failed to have in place adequate systems and controls to identify and mitigate the risk of being used to facilitate fraudulent trading and money laundering in relation to business introduced by the Solo Group.
  • In addition, Sapien failed to exercise due skill, care and diligence in applying anti-money laundering policies and procedures and in failing properly to assess, monitor and mitigate the risk of financial crime in relation to clients introduced by the Solo Group and the purported trading.

At this time Gherson’s team concluded that what is clear from the Sapien announcement is that compliance failings are well within the sights of the regulator, and may well be the short-term focus in its cum-ex investigations.

What was the second corporate regulatory breach in relation to cum-ex trading?

In fact, on 12 November 2021, news broke that a second firm, Sunrise Brokers LLP (“Sunrise”), had been fined by the FCA for having deficient anti-money laundering systems and controls in relation to cum-ex trading. This was, accordingly, the second case bought by the FCA in relation to cum-ex trading, dividend arbitrage and withholding tax reclaim schemes.

The FCA’s findings included that:

Sunrise had deficient systems and controls to identify and mitigate the risk of facilitating fraudulent trading and money laundering in relation to business introduced by the Solo Group, between 17 February 2015 and 4 November 2015.

The Solo trading throughout that period was characterised by a circular pattern of purported trades (highly suggestive of financial crime).

In two instances the firm failed to identify or escalate potential financial crime concerns:

  • Sunrise executed a trade on behalf of a broker client at nearly twice the prevailing market price of the stock.
  • Sunrise 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.

What about any actions against individuals with regards to cum-ex trading?

Gherson’s team have previously written about complications arising in potential prosecutions against individuals and concluded that the decision on how best to proceed by UK regulators will not be an easy one, and may not be a decision that is entirely in their own hands.

What does this mean going forwards?

What remains abundantly clear from this further FCA announcement is that compliance failings remain within the sights of the regulators, and may remain the short-term focus in its cum-ex investigations. The FCA’s cards are clearly on the table and companies or individuals who may have concerns over potential exposure to scrutiny would be well served to seek expert legal advice.

How Gherson can assist you

Gherson’s white-collar crime team comprises individuals who have experience in dealing with internal investigations and fraud allegations, and can therefore offer insightful and expert advice. Gherson’s team can also provide compliance advice, including with regards to AML compliance.  If you would like to speak to us in respect of any of the issues raised in this video or about your specific circumstances, do not hesitate to contact us for advice, send us an e-mail, or alternatively, follow us on TwitterFacebook, or LinkedIn to stay-up-to-date.

 

The information in this blog is for general information purposes only and does not purport to be comprehensive or to provide legal advice. Whilst every effort is made to ensure the information and law is current as of the date of publication it should be stressed that, due to the passage of time, this does not necessarily reflect the present legal position. Gherson accepts no responsibility for loss which may arise from accessing or reliance on information contained in this blog. For formal advice on the current law please don’t hesitate to contact Gherson. Legal advice is only provided pursuant to a written agreement, identified as such, and signed by the client and by or on behalf of Gherson.

©Gherson 2021

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