The FCA announced the imposition of £178,000 fine on Sapien Capital Ltd due to their low control over its
cum/ex trading operations.
May 6, 2021, | AtoZ Markets – The UK Financial Conduct Authority (FCA) has announced the imposition of £178,000 fine on Sapien Capital Ltd due to their poor control over its cum/ex trading operations, over there dividend arbitrage and over there withholding tax (WHT) claim schemes, which would have facilitated fraudulent trading and money laundering.
Between February and November 2015 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.
What Are cum/ex Operations?
What is done in this type of fraud is to sell short the shares before (therefore called “cum dividend”) and after (“ex dividend”) the company pays the dividends and, therefore, the state withholds taxes. corresponding.
To understand the operation of this conspiracy, it is important to know that the “cum” are worth more than the “ex”, since the former include the dividend that the company is about to distribute among the holders of shares. So far everything is considered normal, but the trap consists of the so-called short sales that are made in this regard.
The trick is that an investor would short sell his cum investment (with dividend), but when it returned to him he did so already being ex (without dividend), so, although in the end all the securities were in the same hands as before from the first sale, you received compensation subject to withholding tax.
What the FCA Said
The FCA has said that the company executed purported OTC equity trades to the value of approximately £2.5 billion in Danish equities and £3.8 billion in Belgian equities.
Adittional to it, Sapien failed to make advance controls and not applying anti-money laundering policies for their transactions and not mitigate the risk of financial crime in relation to clients introduced by the Solo Group and the purported trading .
Mark Steward, Director of Enforcement and Market Oversight, stated:
“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 skepticism and alertness to the risk of money laundering and financial crime, and failures here constitute serious misconduct.”
Sapien is going through financial problems at the moment, for this reason decided to make atFocused Resolution Agreement and obtain a 30% discount of his sanction, which gave him a reduction of approximately £219,100.
The FCA also stated that it will continue to investigate everything that happened, so this story has not end.
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