FCA fines TJM £2m for executing billions in cum-ex trading scheme
The FCA has fined The TJM Partnership Limited £2,038,700, while being in liquidation.
The UK financial watchdog found TJM to have failed to have adequate procedures, systems, and controls to identify and mitigate the risk of being used to facilitate fraudulent trading and money laundering in relation to trading on behalf of clients of the Solo Group between January 2014 and November 2015.
The firm was also charged for failing to adequately apply its anti-money laundering policies and did not properly assess, monitor and mitigate the risk of financial crime.
Circular pattern of trades suggested financial crime
The FCA identified a circular pattern of purported trades (highly suggestive of financial crime) executed on behalf of the Solo Group’s clients, which appears to have been carried out to allow the arranging of withholding tax reclaims in Denmark and Belgium.
The regulator stated TJM executed trading to the value of approximately £59 billion in Danish equities and £20 billion in Belgian equities and received commission of £1.4 million, which was a significant proportion of the firm’s revenue in the period.
In two other instances, TJM failed to exert proper control over two transactions made by Solo Group with no apparent economic purpose except to transfer substantial windfall profits of €4.3 million amongst its clients. TJM also accepted payment from a third party without appropriate due diligence, the FCA added.
Because TJM agreed to resolve all issues of fact and liability, it qualified for a 30% discount under the FCA’s Settlement Discount Scheme.
Mark Steward, Executive Director of Enforcement and Market Oversight, said: ‘TJM allowed itself to become involved in a self-evidently suspicious scheme of circular transactions that looked like shams. TJM demonstrated a complete lack of care and diligence in participating in these transactions of dubious purpose.’
This was the third case brought by the FCA in relation to cum-ex trading and the largest fine so far. The first two cum-ex cases concluded in May and November 2021
In May 2021, the FCA fined Sapien Capital £178,000 for having executed purported OTC equity trades to the value of approximately £2.5 billion in Danish equities and £3.8 billion in Belgian equities. Sunrise Brokers were fined £600,000. Both cases involved money laundering by the Solo Group.
The financial penalty of £2,038,700 imposed on TJM is the largest of the three concluded cum-ex trading cases, which reflects the elements of seriousness, multiple examples of misconduct and the protracted period of the breaches.
As TJM is in creditors’ voluntary liquidation, the FCA will become a creditor of the firm. However, existing creditors will be given precedence over the FCA’s financial penalty.
Cum-ex trading involves trading of shares on or just before the last cum-dividend date. If in a suitable jurisdiction this can then allow a party to claim a tax rebate on withholding tax, sometimes without entitlement.