FCA Fines Mako Financial Markets £1.66 Million for Lapses in Financial Crime Controls

The UK’s Financial Conduct Authority (FCA) has imposed a £1.66 million fine on Mako Financial Markets Partnership for failing to establish effective financial crime controls in connection with cum-ex trading. This marks the FCA’s eighth enforcement action related to cum-ex trading, pushing the total fines in this area to more than £30 million.

Between December 2013 and November 2015, Mako executed over-the-counter equity trades on behalf of Solo Group clients. These transactions involved £68.6 billion in Danish equities and £23.6 billion in Belgian equities, generating approximately £1.45 million in commissions for Mako. The FCA determined that these trades were circular in nature, strongly indicating financial crime. “It appears to have been carried out to allow the arranging of withholding tax (WHT) reclaims in Denmark and Belgium,” the FCA stated. Several individuals connected to the trades have since been convicted in Denmark.

Mako also failed to identify and respond to red flags in other transactions linked to the Solo Group. In one instance, a series of trades lacked a legitimate purpose and resulted in a €2 million loss for the Solo Group’s controller, while his associates benefited. Furthermore, Mako accepted payments from a UAE-based third party to settle debts owed by Solo Group clients without conducting the necessary due diligence, thereby increasing the risk of money laundering.

Cum-ex trading involves the rapid buying and selling of shares just before the last cum-dividend date, the moment when a dividend is set to be paid. This practice, in certain jurisdictions, allows traders to claim a tax rebate on withholding tax, sometimes without actually being entitled to it. Withholding tax (WHT) is deducted at the source and remitted to the government, typically applied to securities generating dividends or interest. Some international tax treaties, however, enable foreign investors to claim rebates on this tax.

Mako chose not to dispute the FCA’s findings and agreed to a settlement. By doing so, the firm qualified for a 30% reduction in its penalty under the FCA’s Settlement Discount Scheme.

Therese Chambers, joint executive director of enforcement and market oversight at the FCA, criticized Mako’s shortcomings, stating: “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.”

By fLEXI tEAM