The Monetary Conduct Authority has fined Metropolis dealer ED&F Man Capital Markets a document £17.2m for “critical failings” in its oversight of cum-ex buying and selling.
The FCA mentioned the failings allowed the agency to gather hundreds of thousands of kilos of charges for the buying and selling technique as its purchasers illegitimately reclaimed tax from Danish authorities.
Cum-ex buying and selling includes inserting shares in various tax jurisdictions round dividend dates, with the goal of minimising withholding tax or producing withholding tax reclaims.
Between February 2012 and March 2015, the FCA mentioned ED&F Man “enabled vital volumes of dividend arbitrage buying and selling on behalf of purchasers, permitting purchasers to make withholding tax (WHT) reclaims.”
The FCA mentioned: “It’s established that £20m of the WHT reclaims made by MCM’s [ED&F Man Capital Markets] purchasers to the Danish tax authority (SKAT) had been illegitimate.
“A Dubai based mostly buying and selling agency throughout the similar company group as MCM participated within the buying and selling technique which resulted in these illegitimate WHT reclaims from SKAT.”
The withholding tax reclaims had been illegitimate as a result of no shares had been owned or borrowed, no dividend was acquired, and no tax was paid, the FCA mentioned. The agency generated £5.06m in charges from the technique.
Therese Chambers, joint govt director of enforcement and market oversight, mentioned: “It’s fully unacceptable for authorised companies to become profitable from this type of buying and selling. It’s important that each one companies have the appropriate controls and experience in place to keep away from the danger of getting used to facilitate monetary crime.”
ED&F Man mentioned the FCA’s motion pertains to a legacy enterprise space that was shut down in 2015. “It was particularly excluded from the sale of belongings to Marex and is a contingent legal responsibility that was ring-fenced as a part of that transaction. It should now be doable to take the ultimate steps in deregulating and shutting the MCML enterprise.”
ED&F Man was purchased by Marex in 2022 in a £170m deal.
The high quality marks the fourth case introduced by the FCA towards cum-ex buying and selling and is the biggest high quality for cum-ex buying and selling thus far.
The motion is a part of a variety of measures taken by the FCA in reference to cum-ex dividend arbitrage instances and WHT schemes, which has concerned proactive engagement with international regulation enforcement authorities.