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What has happened?

In November 2021, the FCA fined interdealer broker Sunrise Brokers LLP over £600,000 for deficient anti-money laundering systems and controls. This is the second case brought by the FCA in relation to cum-ex trading, dividend arbitrage and withholding tax (WHT) reclaim schemes; the first FCA case relating to cum-ex trading, involving Sapien Capital, concluded in May 2021.

What do you need to do?

The FCA found that Sunrise had deficient systems and controls to identify and mitigate the risk of facilitating fraudulent trading and money laundering in relation to 142 offshore clients introduced by the Solo Group, between 17 February 2015 and 4 November 2015. It was found that the Solo clients’ trading throughout the period was characterised by a circular pattern of purported trades in OTC equities, back-to-back securities lending and forward transactions– characteristics which 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 via Dividend Credit Advice Slips.

In particular, in two instances the firm failed to identify or escalate any potential financial crime concerns or suspicions when it should have done, where:

• 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.
• Sunrise accepted a payment from a UAE-based entity, Elysium, connected to the Solo Group in respect of outstanding debts owed by clients of Solo.

More generally, the FCA found that Sunrise failed to exercise due skill, care and diligence in applying anti-money laundering policies and procedures and failed properly to assess, monitor and mitigate the risk of financial crime in relation to clients introduced by the Solo Group and the purported trading.

The action taken is part of a range of measures taken in connection with cum-ex dividend arbitrage cases, and WHT schemes. This has involved FCA engagement with EU and global law enforcement authorities.

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 financial crime controls, or with 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.