FCA has imposed its first fine for failings in cum/ex trading, dividend arbitrage and withholding tax reclaim schemes. It fined Sapien Capital £178,000 for systems and controls failings that led to the risk of facilitating fraudulent trading and money laundering.
For a 9 month period, the firm failed to have in place systems and controls that could identify and mitigate the risk of it being used to facilitate fraud and money laundering in relation to business introduced by the Solo Group. The trading had a circular pattern of high value trades that seemed to be undertaken to avoid the normal need for payments and delivery of securities in the settlement process, and made use of OTC equities trading, securities lending and forward transactions on or around the last day the securities were cum dividend.
FCA found no evidence of change ownership nor of custody of the shares, and no evidence of settlement of trades by the Solo Group.
It found Sapien did not undertake appropriate due diligence on the Solo clients and did not perform effective risk assessments.
The fine would have been greater were it not for both an early settlement discount and the firm’s financial hardship. FCA says it is continuing further investigations into UK brokers’ involvement in cum/ex dividend arbitrage schemes.