The London-based Mako Financial Markets is the latest
firm to bear the brunt of the UK regulator’s crackdown on the infamous cum-ex
trading scandal.

UK regulator Financial Conduct Authority (FCA) imposed
a £1.66 million fine on Mako Financial Markets Partnership LLP for failing to
implement effective controls against financial crime.

“Between December 2013 and November 2015, Mako
executed purported over-the-counter equity trades on behalf of clients of the
Solo Group, worth approximately £68.6bn in Danish equities and £23.6bn in
Belgian equities. Mako received a commission of approximately £1.45m,” the regulator wrote.

The fine marks the conclusion of the FCA’s
long-running investigation into cum-ex trading, a controversial scheme linked
to fraudulent tax reclaims. With this latest action, the regulator has now
imposed more than £30 million in fines related to cum-ex trading.

Mako’s Role in Suspect Trading Activity

The Cum-Ex trading scandal is a massive tax fraud
scheme that first emerged in Germany and later implicated other European
countries, including the UK. It involved dividend stripping, where traders
exploited tax loopholes in various countries to claim multiple refunds on
dividend withholding tax that had only been paid once.

Regulators flagged the trades by Mako as an indicator
of financial crime. The structure suggested that the transactions were designed
to facilitate withholding tax (WHT) reclaims in Denmark and Belgium. Danish
authorities have since convicted several individuals linked to the scheme.

Additionally, the regulator pointed out that Mako
accepted payments from a United Arab Emirates-based third party to settle debts
owed by Solo Group clients. No due diligence was performed on these
transactions, raising further money laundering concerns.

Final Settlement and Regulatory Implications

Mako did not dispute the FCA’s findings and agreed to
settle the case, benefiting from a 30% reduction in its fine under the FCA’s
settlement discount scheme.

In a separate case, the FCA imposed a penalty of
£288,962.53 on Arian Financial early this year, also in relation to the same scandal.
The watchdog blamed the company for failing to implement adequate systems and
controls against financial crime.

“Arian failed to identify red flags which ought to
have been obvious,” commented Steve Smart, Joint Executive Director of
Enforcement and Market Oversight at the FCA.

“The controls the firms we regulate have in place are
an important line of defense against our financial system being abused for
criminal ends. Arian’s fell short of what we expect.”