FCA fines Sapien Capital for financial crime control failings
What has happened?
The FCA has fined Sapien Capital Ltd £178,000 for failings that led to the risk of facilitating fraudulent trading and money laundering. This is the first FCA case in relation to cum/ex trading, dividend arbitrage and withholding tax reclaim schemes, and the FCA has reported that there are currently a number of ongoing and overlapping investigations in this area.
What do you need to do?
Between 10 February 2015 and 10 November 2015, Sapien failed to have in place adequate systems and controls to identify and mitigate the risk of being used to facilitate fraudulent trading and money laundering in relation to the business of 166 clients introduced by the Solo Group. The Solo trading was characterised by what appeared to be a circular pattern of extremely high-value trades undertaken to avoid the normal need for payments and delivery of securities in the settlement process. The trading pattern involved the use of Over the Counter equity trading, securities lending and forward transactions, involving EU equities, on or around the last day that securities were cum dividend.
The FCA investigation found no evidence of change of ownership of the shares traded by the Solo clients (which were offshore companies and a number of individual US 401(k) Pension Plans previously unknown to Sapien), or of custody of the shares and settlement of the trades by the Solo Group. In fact, the way these trades were conducted by the Solo Group and its clients, in combination with their scale and volume (several billion pounds), was highly suggestive of financial crime, and the trades appear to have been undertaken to create an audit trail to support withholding tax reclaims made in Denmark and Belgium.
In addition, Sapien breached Principle 2 when it failed to exercise due skill, care and diligence in applying anti-money laundering policies and procedures and in failing properly to assess, monitor and mitigate the risk of financial crime in relation to clients introduced by the Solo Group and the purported trading. Sapien did not undertake appropriate due diligence and failed to perform effective risk assessments or client categorisation on the Solo clients.
The publication of the Final Notice in relation to Sapien is part of a range of measures taken in connection with cum/ex dividend arbitrage cases, and withholding tax schemes. This has involved engagement with EU regulators and global law enforcement. The FCA’s investigation into the involvement of UK-based brokers in cum/ex dividend arbitrage schemes is continuing.
How can we help you?
If you’d like to know more about how we can help you with your anti-fraud and financial crime arrangements, or any other regulatory compliance issues, our expert team is here to help.
Contact us today on 0207 436 0630 or email info@thistleinitiatives.co.uk.