Sapien Capital fined for financial crime control failings

Sapien Capital has been fined £178,000 by the FCA for failings which 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 (WHT) reclaim schemes.

The investigation also found that Sapien failed to exercise due skill, care and diligence in applying anti-money laundering policies and procedures.

Between 10 February 2015 and 10 November 2015, the FCA said that 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 business introduced by the Solo Group.

The FCA stated that 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. This trading pattern involved the use of Over the Counter (OTC) equity trading, securities lending and forward transactions, involving EU equities, on or around the last day securities were cum dividend.

The way these trades were conducted by the Solo Group and their clients, in combination with their scale and volume, were “highly suggestive of financial crime”, the FCA stated, and appeared to have been undertaken to create an audit trail to support withholding tax reclaims in Denmark and Belgium. Sapien executed purported OTC equity trades to the value of approximately £2.5bn in Danish equities and £3.8bn in Belgian equities.

FCA director of enforcement and market oversight, Mark Steward, commented: “These transactions ran money laundering and other financial crime risks which Sapien incompetently failed to see.

“The FCA expects firms have systems and controls that test the purpose and legitimacy of transactions, reflecting scepticism and alertness to the risk of money laundering and financial crime, and failures here constitute serious misconduct.”

An FCA investigation into the involvement of UK based brokers in cum/ex dividend arbitrage schemes is continuing.

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