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FCA Fines Firm For Enabling Illegitimate Tax Reclaims


The FCA has fined ED&F Man Capital Markets Ltd (MCM) £17.2m for serious failings in its oversight of cum-ex trading. These allowed MCM to collect fees worth more than £5m for trading strategies that allowed its clients to reclaim tax illegitimately from the Danish authorities. 

Between February 2012 and March 2015, MCM enabled significant volumes of dividend arbitrage trading which enabled its clients to make illegitimate withholding tax (WHT) reclaims worth at least £20m from the Danish tax authority (SKAT). 

A Dubai-based trading firm within the same corporate group as MCM participated in the trading strategy, under which WHT was reclaimed illegitimately because no shares were owned or borrowed, no dividend received, and no tax paid. MCM generated £5.06m in fees from this.

The FCA concluded that MCM had inadequate compliance checks in place and failed to ensure that its dividend arbitrage trading was legitimate. The firm’s compliance function did not have the necessary expertise to monitor or review the trading and only carried out a high-level annual compliance review of the department responsible. It failed to take any steps to understand the trading activities or properly consider the risks of dividend arbitrage trading. 

FCA Joint Executive Director of Enforcement and Market Oversight Therese Chambers said ‘MCM facilitated a significant volume of trades for the purpose of making illegitimate tax reclaims from the Danish Exchequer and earned significant fees. It is completely unacceptable for authorised firms to make money from this kind of trading. It is essential all firms have the right controls and expertise in place to avoid the risk of being used to facilitate financial crime.’

This is the fourth case brought by the FCA in relation to cum-ex trading, and the largest fine so far. As MCM has not disputed the FCA’s findings and agreed to settle, it qualified for a 30% discount under the FCA’s Settlement Discount Scheme. The fine includes £5.06m of income forfeited by MCM as a result of its breaches in relation to cum-ex trading.