The UK's Financial Conduct Authority (FCA) has fined ED&F Man Capital Markets Ltd (MCM) £17.2 million, the UK regulator’s largest penalty in relation to "cum-ex" trading so far.
The regulator fined the business a total of £17,219,300 for failings in its oversight of cum-ex trading - where the failings allowed MCM clients to make withholding tax reclaims to the Danish tax authority (SKAT).
The FCA established that £20 million of the withholding tax reclaims made by MCM’s clients to SKAT were “illegitimate” between February 2012 and March 2015.
MCM qualified for a 30% discount on the fine under the FCA’s Settlement Discount Scheme, as it has not disputed the FCA’s findings and agreed to settle.
A Dubai-based trading firm within the same corporate group as MCM participated in the trading strategy in which withholding tax was reclaimed despite no shares being owned or borrowed, no dividend being received, and no tax being paid.
MCM generated £5.06 million in fees from this, and that sum is included in the fine.
Therese Chambers, joint executive director of enforcement and market oversight, said: “MCM facilitated a significant volume of trades for the purpose of making illegitimate tax reclaims from the Danish Exchequer and earned themselves significant fees.
“It is completely unacceptable for authorised firms to make money from this kind of trading. It’s essential that all firms have the right controls and expertise in place to avoid the risk of being used to facilitate financial crime.”
This action is part of a range of measures taken by the FCA in connection with cum-ex dividend arbitrage cases and withholding tax schemes, with a number of ongoing investigations into UK brokers for similar failings currently being conducted.
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