The United Kingdom’s Financial Conduct Authority (FCA) has issued a penalty of £288,962.53 to Arian Financial for inadequate financial crime controls. These lapses allowed the broker’s services to be misused in connection with cum-ex trading and withholding tax schemes. Initially, the regulator proposed a fine of £744,745, but this was reduced by the Upper Tribunal after Arian admitted liability and challenged the initial amount.
Understanding Cum-Ex Trading
Cum-ex trading, also known as the cum-ex dividend scandal, is a tax-related scheme where multiple parties manipulate tax systems to claim refunds on taxes they never paid. The practice has been particularly prevalent in European countries, such as Germany, Denmark, and Belgium.
According to the FCA, Arian Financial executed over-the-counter trades valued at approximately £37 billion in Danish equities and £15 billion in Belgian equities for clients of the Solo Group. These trades generated about £546,949 in commission for Arian. However, the regulator identified that these transactions were “circular” in nature—a clear indicator of potential financial crime.
The Solo Group’s clients reportedly reclaimed £899.27 million and £188 million in withholding taxes from Danish and Belgian authorities in 2014 and 2015, respectively. During the same period, they received an additional £845.9 million and £42.33 million from the two countries.
Regulatory Shortcomings and Red Flags
Steve Smart, Joint Executive Director of Enforcement and Market Oversight at the FCA, criticized Arian Financial for its failure to detect clear warning signs. “The controls the firms we regulate have in place are an important line of defence against our financial system being abused for criminal ends. Arian’s fell short of what we expect,” he stated.
FCA’s Ongoing Efforts Against Financial Crime
The action against Arian Financial is part of the FCA’s broader crackdown on cum-ex trading schemes. The regulator has now taken enforcement action in seven such cases, imposing total penalties of £22 million on various individuals and entities.
Notable previous actions include a £5.95 million fine against Nailesh Teraiya, the former CEO of Indigo Global Partners, who was also banned from performing any regulated activity. Other firms penalized in connection with cum-ex trading include Sapien Capital, Sunrise Brokers, TJM Partnership, ED&F Man Capital Markets, and Bastion Capital London.
