FCA fines broker for deficient anti-money laundering systems

The FCA has fined Sunrise Brokers £642,400 for serious financial crime control failings in relation to cum-ex trading.

This is the second case brought by the regulator in relation to cum-ex trading, dividend arbitrage and withholding tax reclaim schemes, following the conclusion of the first case in May this year.

Cum-ex trading involves trading of shares on or just before the last cum-dividend date. If in a suitable jurisdiction this can then allow a party to claim a tax rebate on withholding tax, sometimes without entitlement.

The FCA found that Sunrise had “deficient systems and controls” to mitigate the risk of fraudulent trading and money laundering in relation to business introduced by the Solo Group, between February and November 2015.

On review, it was found that Solo Group trading throughout the period was characterised by a circular pattern of purported trades – characteristics which the FCA said are “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.

In one instance, Sunrise executed a trade on behalf of a broker client, introduced by the Solo Group, at nearly twice the prevailing market price of the stock, while in another, the broker accepted a payment from a UAE-based entity connected to the Solo Group in respect of outstanding debts owed to them by Solo clients.

More generally, the FCA said it had found that Sunrise “failed to exercise due skill, care and diligence” in applying anti-money laundering policies and procedures.

FCA executive director of enforcement and market oversight, Mark Steward, 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’s investigation into the involvement of UK-based brokers in cum-ex dividend arbitrage schemes continues.

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