FCA Imposes Fifth Penalty for Cum-Ex Trading, Totaling £20m

<p>The
Financial Conduct Authority (<a href="https://www.financemagnates.com/tag/fca/" target="_blank" rel="follow">FCA</a>) has imposed a hefty fine of £2,452,700 on Bastion Capital London Limited for significant financial control failings
related to cum-ex trading. Bastion reportedly failed to control the risk of
being used to facilitate fraudulent trading and <a href="https://www.financemagnates.com/terms/m/money-laundering/">money laundering</a>.</p><p>FCA Fines Bastion Capital
for Cum-Ex Trading</p><p>Between
January 2014 and September 2015, Bastion executed trades valued at
approximately £49 billion in Danish equities and £22.5 billion in Belgian
equities on behalf of Solo Group clients. The trades were conducted in a manner
highly suggestive of financial crime. </p><p>The transactions seem to have been
arranged to facilitate withholding tax reclaims in Denmark and Belgium. As a
result, Bastion received a commission of £1.55 million, forming a substantial
part of the company's revenue during that period.</p><p>Bastion
also conducted a series of trades on behalf of 11 Solo Clients within a
four-day period. The same clients executed opposite positions within hours at
substantially different prices. This led to a loss of €22.7 million for one
Solo client, Ganymede Cayman Ltd, to the advantage of the remaining ten Solo
Clients.</p><p>Bastion
failed to notice or deliberately ignored multiple red flags related to these
trades. They had no economic purpose beyond transferring funds from the Solo
Group's controller to his business associates.</p><p>“Bastion
earned significant fees from executing trades on behalf of Solo Group which
were ultimately for the purpose of making illegitimate tax reclaims from the
Danish and Belgian exchequers,” Steve Smart, the Joint Executive Director of
Enforcement and Market Oversight at the FCA, commented. </p><p>“They failed to spot clear
red flags which should have alerted them to the risk of being used for
financial crime. Firms need to properly manage these risks.”</p><p>Bastion did
not dispute the FCA's findings and agreed to settle, so it qualified for a 30%
discount under the FCA's Settlement Discount Scheme. Due to Bastion's
liquidation status, the FCA will become a creditor of the company, but existing
creditors will take precedence over the FCA's financial penalty.</p><p>FCA Fights Cum-Ex Trading</p><p>This case is
the <a href="https://www.financemagnates.com/forex/fca-fines-edf-man-17m-for-clients-dividend-arbitrage-trading/" target="_blank" rel="follow">FCA's fifth related to cum-ex trading</a>, forming part of an extensive range
of measures taken by the FCA concerning cum-ex dividend <a href="https://www.financemagnates.com/terms/a/arbitrage/">arbitrage</a> cases. So
far, the FCA has imposed over £20 million in fines on firms that have earned over £7
million in fees from such trading. A month ago, the FCA imposed <a href="https://www.financemagnates.com/forex/fca-fines-edf-man-17m-for-clients-dividend-arbitrage-trading/" target="_blank" rel="follow">a sizeable fine on ED&amp;F Man</a> and last year, <a href="https://www.financemagnates.com/institutional-forex/fca-fines-tjm-2-million-for-lapses-in-aml-controls/" target="_blank" rel="follow">it fined TJM Partnership Limited</a>.</p><p>Cum-ex
trading refers to a controversial type of stock trading that was largely
practiced in Germany and other parts of Europe before it was deemed
illegal due to its exploitative nature. The name comes from the Latin terms ‘cum’
(with) and ‘ex’ (without), referring to shares with and without dividend
rights.</p><p>In this type
of trading, both the first bank and the stock borrower would claim tax refunds
for capital gains tax on the same stock. It would enable them to reclaim double
the amount of taxes that were originally paid. This amounts to exploiting a
loophole in the system to 'steal' from the state treasury.</p>

This article was written by Damian Chmiel at www.financemagnates.com.