The UK's Financial Conduct Authority has fined Bastion Capital London Limited (in liquidation) £2,452,700 for serious financial crime control failings in relation to cum-ex trading.
They failed to manage the risk of being used to facilitate fraudulent trading and money laundering, the regulator said in a statement on 13 July.
Between January 2014 and September 2015 Bastion executed trading to the value of approximately £49bn in Danish equities and £22.5bn in Belgian equities on behalf of Solo Group clients.
The purported trades were carried out in a way that was highly suggestive of financial crime. The trading appears to have been carried out to allow the arranging of withholding tax reclaims in Denmark and Belgium. Bastion received commission of £1.55m, a significant proportion of the firm's revenue in the period.
In addition, Bastion executed a series of trades on behalf of 11 Solo Clients on 4 days. Opposite positions were then executed by the same clients within hours, at significantly different prices. This resulted in a loss of €22.7m for 1 Solo client (Ganymede Cayman Ltd, an entity wholly owned by the Solo Group's controller) to the benefit of the remaining 10 Solo Clients.
Bastion ignored or failed to notice a series of red flags in relation to these trades, which had no apparent economic purpose except to transfer funds from the Solo Group's controller to his business associates. Bastion should have considered financial crime risks when onboarding these Solo Clients and when executing the trading.
Steve Smart, joint executive director of enforcement and market oversight, said: "Bastion 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."
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.
This has involved proactive engagement with global law enforcement authorities. The FCA has imposed fines of over £20m on firms which earned over £7m in fees from this trading.
As Bastion has not disputed the FCA's findings and agreed to settle, it qualified for a 30% discount under the FCA's Settlement Discount Scheme.