FCA fines Bastion Capital for cum-ex violations
13 July 2023 UK
Image: AdobeStock/gmcphotopress
The UK Financial Conduct Authority has fined Bastion Capital London Ltd 拢2.45 million for executing cum-ex trades on behalf of its buy-side client Solo Group.
These trades were placed on behalf of clients of Solo Group between January 2014 and September 2015 and represented a total value of approximately 拢49 billion in Danish equities and 拢22.5 billion in Belgian equities transactions.
The UK regulator ruled that the transactions were carried out in a way 鈥渢hat was highly suggestive of financial crime鈥� and indicated that the broker had failed to manage the risk that it was being used to facilitate fraudulent trading and moneylaundering.
It noted that the trades appear to have been conducted to enable withholding tax (WHT) reclaims to be made on these equities holdings in Denmark and Belgium. Bastion received 拢1.55 million as commission against these trades.
Over a four-day period, Bastion had also executed a series of transactions on behalf of Solo Group clients, with the same clients then executing opposite trades hours later at significantly different prices.
The FCA reports that 10 of these clients made gains on the trades, with a further client 鈥� Ganymede Cayman Ltd which is wholly owned by Solo Group鈥檚 controller 鈥� sustaining a loss of 鈧�22.7 million.
The regulator concludes that Bastion Capital London 鈥� which is now in liquidation following a winding-up order issued on 7 June 2019 and which operated out of a registered office in Milton Keynes 鈥� had ignored or failed to notice a sequence of red flags pertaining to these transactions. The company should have evaluated the risks of financial crime when executing the trades and, prior to this, when onboarding the clients.
Steve Smart, joint executive director of Enforcement and Market Oversight, says: 鈥淏astion 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. 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.鈥�
This is the fifth case brought by the FCA in relation to cum-ex trading and is part of a range of measures taken by the FCA in connection with cum-ex dividend arbitrage cases and WHT schemes.
The FCA has imposed fines of over 拢20m on firms which earned over 拢7m in fees from this trading.
Bastion has not disputed the FCA鈥檚 findings and agreed to settle. It therefore qualified for a 30 per cent discount under the FCA鈥檚 Settlement Discount Scheme.
In March 2022, Denmark established an extradition treaty with the United Arab Emirates to lay the foundations for the extradition of Sanjay Shah, founder of Solo Capital, who was resident in Dubai. Shah and another British national are accused by the Danish government of having defrauded the Danish exchequer out of more than DKK 9 billion (approx 拢1.5 billion) through illegal cum-ex trading and associated activities.
These trades were placed on behalf of clients of Solo Group between January 2014 and September 2015 and represented a total value of approximately 拢49 billion in Danish equities and 拢22.5 billion in Belgian equities transactions.
The UK regulator ruled that the transactions were carried out in a way 鈥渢hat was highly suggestive of financial crime鈥� and indicated that the broker had failed to manage the risk that it was being used to facilitate fraudulent trading and moneylaundering.
It noted that the trades appear to have been conducted to enable withholding tax (WHT) reclaims to be made on these equities holdings in Denmark and Belgium. Bastion received 拢1.55 million as commission against these trades.
Over a four-day period, Bastion had also executed a series of transactions on behalf of Solo Group clients, with the same clients then executing opposite trades hours later at significantly different prices.
The FCA reports that 10 of these clients made gains on the trades, with a further client 鈥� Ganymede Cayman Ltd which is wholly owned by Solo Group鈥檚 controller 鈥� sustaining a loss of 鈧�22.7 million.
The regulator concludes that Bastion Capital London 鈥� which is now in liquidation following a winding-up order issued on 7 June 2019 and which operated out of a registered office in Milton Keynes 鈥� had ignored or failed to notice a sequence of red flags pertaining to these transactions. The company should have evaluated the risks of financial crime when executing the trades and, prior to this, when onboarding the clients.
Steve Smart, joint executive director of Enforcement and Market Oversight, says: 鈥淏astion 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. 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.鈥�
This is the fifth case brought by the FCA in relation to cum-ex trading and is part of a range of measures taken by the FCA in connection with cum-ex dividend arbitrage cases and WHT schemes.
The FCA has imposed fines of over 拢20m on firms which earned over 拢7m in fees from this trading.
Bastion has not disputed the FCA鈥檚 findings and agreed to settle. It therefore qualified for a 30 per cent discount under the FCA鈥檚 Settlement Discount Scheme.
In March 2022, Denmark established an extradition treaty with the United Arab Emirates to lay the foundations for the extradition of Sanjay Shah, founder of Solo Capital, who was resident in Dubai. Shah and another British national are accused by the Danish government of having defrauded the Danish exchequer out of more than DKK 9 billion (approx 拢1.5 billion) through illegal cum-ex trading and associated activities.
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