The Financial Conduct Authority (FCA) has fined Mako Financial Markets Partnership £1.7m for failing to have effective controls that guard against financial crime.
The regulator also found that the firm failed to "adequately apply the policies and procedures it did have in place".
The FCA found that between December 2013 and November 2015, Mako executed purported over-the-counter equity trades on behalf of clients of the Solo Group.
These trades were worth approximately £68.6bn in Danish equities and £23.6bn in Belgian equities, with Mako receiving commission worth approximately £1.5m.
The investigation found that the trading was circular, which the FCA said is “highly suggestive of financial crime”.
The regulator added that it appears to have been carried out to allow the arranging of withholding tax reclaim in Denmark and Belgium, and several individuals have now been convicted in Denmark as part of the scheme.
Mako also failed to identify red flags in other instances related to the Solo Group business.
This involved a series of transactions which had "no obvious rationale" and resulted in the Solo Group’s controller incurring a €2m loss, to the benefit of their business associates.
Furthermore, Mako received payment from a UAE-based third party, connected to the Solo Group for outstanding debts owed by the group’s clients without performing any due diligence, which the FCA found created an increased risk of money laundering.
Joint executive director of enforcement and market oversight, Therese Chambers, said: "Mako failed to spot clear red flags and facilitated highly suspicious trading that made it vulnerable to being used to support financial crime.
"For UK financial services to grow and compete, investors need to have trust in it. That’s why it is vital we stamp out these unacceptable practices which risk the reputation and integrity of UK markets."
The case was the eighth enforcement case brought by the FCA in relation to cum-ex trading, and it has now concluded its investigations.
The regulator has worked closely with EU and global law enforcement agencies across these investigations and has imposed fines of more than £30m in relation to this trading.
Mako did not dispute the FCA’s findings and agreed to settle, meaning that it qualified for a 30% discount on its fine.
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