The UK’s financial watchdog the Financial Conduct Authority has fined broker Bastion Capital London £2.45m for facilitating over £70bn in so-called ‘cum-ex’ trades of Belgian and Danish stocks on behalf of clients of hedge fund Solo Group.
The UK’s financial watchdog the Financial Conduct Authority (FCA) has fined broker Bastion Capital London £2.45m for facilitating over £70 billion in so-called ‘cum-ex’ trades of Belgian and Danish stocks on behalf of clients of hedge fund Solo Group.
This is the fifth case brought by the FCA in relation to cum-ex trading, where shares were traded rapidly among banks, investors and hedge funds to blur stock ownership, allowing multiple parties to claim tax rebates and exploit the tax codes of countries such as Denmark, Germany and Belgium.
The FCA has now imposed fines of over £20m on firms which earned over £7m in fees from the activity.
The FCA says that Bastion, which is now in liquidation, failed to manage the risk of being used to facilitate fraudulent trading and money laundering.
According to the FCA, between January 2014 and September 2015, Bastion executed trading to the value of approximately £49bn in Danish equities and £22.5bn in Belgian equities on behalf of Solo Group clients. The purported trades were carried out in a way that was 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. Bastion received commission of £1.55m, a significant proportion of the firm’s revenue in the period.
In addition, Bastion executed a series of trades on behalf of 11 Solo Clients on four days. Opposite positions were then executed by the same clients within hours, at significantly different prices. This resulted in a loss of €22.7m for 1 Solo client (Ganymede Cayman Ltd, an entity wholly owned by the Solo Group’s controller) to the benefit of the remaining 10 Solo clients.
Bastion ignored or failed to notice a series of red flags in relation to these trades, which had no apparent economic purpose except to transfer funds from the Solo Group’s controller to his business associates. The FCA said Bastion should have considered financial crime risks when onboarding these Solo Clients and when executing the trading.
With Bastion in liquidation the FCA is now a creditor, although existing creditors will get precedence over the fine, the FCA has said.