Cum-ex: FCA fines broker over trading violations
The Financial Conduct Authority (FCA) has fined broker Arian Financial £288,962 over cum-ex trading violations, after it failed to ensure it had effective systems and controls against financial crime.
Cum-ex trading, also known as dividend stripping, is a method of tax avoidance that allows firms to distribute profit as capital gains rather than dividends, allowing them to pay a lower level of tax.
This is the seventh case brought by the FCA in relation to cum-ex trading and withholding tax schemes, with the FCA making firms pay out more than £22m in fines over the scandal.
Arian executed purported over-the-counter equity trades of around £37bn and £15bn in Danish and Belgian equities on behalf of the Solo Group’s clients, receiving commission of around £546,949.
The trading was circular and “highly suggestive of financial crime”, the FCA said, seemingly meant to dodge tax in Denmark and Belgium.
The cum-ex scandal led to billions of euros in tax losses for countries around Europe between 2012 and 2015, where firms pretended to own shares in companies and claimed tax refunds despite not being eligible.
In 2014 and 2015, the Solo Group paid out more than £800m to Danish and Belgian authorities, and its founder, Sanjay Shah, was sentenced to 12 years in Danish prison last month.
Firms connected to the Solo Group have previously faced scrutiny from the FCA, with Sapien Capital facing a similar fine from the City regulator in 2021.
While Arian initially admitted liability, it took the FCA’s fine to the Upper Tribunal, which reduced the firm’s fine from £744,745 to the £288,962 ultimately due.
“Arian failed to identify red flags which ought to have been obvious,” said Steve Smart, joint executive director of enforcement and market oversight at the FCA.
“The controls the firms we regulate have in place are an important line of defence against our financial system being abused for criminal ends. Arian’s fell short of what we expect.”