FCA: Sunrise Brokers fined over £600k for Solo Group crimes, Sapien Capital paid £170k

The Financial Conduct Authority, UK’s financial watchdog, has fined Sunrise Brokers LLP over £600,000 for deficient anti-money laundering systems and controls.

Sunrise Brokers had allegedly failed to have proper systems and controls to identify and mitigate the risk of facilitating fraudulent trading and money laundering in relation to business introduced by the Solo Group, between 17 February 2015 and 4 November 2015.

This is the second case brought by the FCA in relation to cum-ex trading, dividend arbitrage and withholding tax (WHT) reclaim schemes.

The first FCA case relating to cum-ex trading also regards Solo Group, which also engaged in the same criminal practices through Sapien Capital. That case was concluded in May 2021 with a fine worth £170,000.

As to Sunrise Brokers, the UK FCA found that the Solo trading throughout the period was characterized by a circular pattern of purported trades – characteristics that are highly suggestive of financial crime. The trading appears to have been carried out to allow the arranging of withholding tax reclaims in Denmark and Belgium.

The regulator cites two instances where Sunrise failed to identify or escalate any potential financial crime concerns or suspicions:

Sunrise executed a trade on behalf of a broker client, introduced by the Solo Group, at nearly twice the prevailing market price of the stock.

Sunrise accepted a payment from a UAE-based entity connected to the Solo Group in respect of outstanding debts owed to them by clients of Solo.

Mark Steward, Executive Director of Enforcement and Market Oversight, said: ‘Sunrise should not have carried out these self-evidently suspicious trades without proper due diligence. Sunrise’s failings were significant and this outcome demonstrates we will not tolerate firms’ lax controls and that we will work with overseas agencies to ensure London is not viewed as a haven for poor controls and practices.’

Sunrise didn’t show due skill, care and diligence in applying anti-money laundering policies and procedures. Having agreed to resolve all issues of fact and liability, the firm qualified for a 30% discount under the FCA’s executive settlement procedures.

The FCA continues to investigate the involvement of UK-based brokers in cum-ex dividend arbitrage schemes. More cases are likely to be announced in the future.

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.

The intention of dividend arbitrage is to place shares in alternative tax jurisdictions around dividend dates, with the aim of minimising withholding tax or generating withholding tax reclaims.

This may involve several different trading activities including trading and lending securities and trading derivatives, including futures and total return swaps, designed to hedge movements in the price of the securities over the dividend dates.