FCA Slaps £1.66 Million Fine on Mako for Failures in Preventing Financial Crime

Key Takeaways

• Mako Financial Markets Penalty: The FCA has fined Mako Financial Markets £1.66 million for failing to prevent financial crime linked to cum-ex trading.
• Suspicious Trading Activity: Mako executed trades worth £92bn on behalf of clients tied to the Solo Group, facilitating fraudulent withholding tax reclaims in Denmark and Belgium.
• Due Diligence Failures: The firm failed to identify significant red flags and neglected to conduct proper due diligence, increasing its exposure to money laundering risks.
• FCA’s Broader Crackdown: This fine brings the FCA’s investigation into cum-ex trading to a close, part of over £30 million in penalties already imposed in relation to the practice.

Deep Dive

The Financial Conduct Authority (FCA) has handed down a fine of £1,662,700 to Mako Financial Markets Partnership LLP (Mako) for serious lapses in its systems and controls—failings that left it vulnerable to facilitating financial crime. This is the latest in a series of enforcement actions stemming from the FCA’s deep dive into cum-ex trading, a practice that has raised alarms across Europe and beyond.

From December 2013 to November 2015, Mako was responsible for executing over-the-counter equity trades worth a staggering £92.2bn on behalf of clients linked to the Solo Group, including roughly £68.6bn in Danish equities and £23.6bn in Belgian equities. Despite the hefty commission of £1.45m Mako received, these trades were more than just business as usual—they were circular, suspiciously designed to help orchestrate fraudulent withholding tax (WHT) reclaims in Denmark and Belgium.

As the FCA’s investigation unraveled, it became clear that Mako had failed to recognize glaring red flags that should have set off alarms. One of the more troubling aspects involved a set of transactions that made no economic sense, resulting in the Solo Group’s controller suffering a €2m loss. What made this particularly concerning was that the loss seemed to benefit his associates, raising further questions about the integrity of the trading activities.

But the issues didn’t stop there. Mako also received payments from a third party based in the UAE, connected to the Solo Group. Without conducting adequate due diligence, Mako exposed itself to increased money laundering risks, amplifying its vulnerability.

Therese Chambers, the FCA’s joint executive director of enforcement and market oversight, couldn’t have been clearer: “Mako failed to spot clear red flags and facilitated highly suspicious trading that made it vulnerable to being used to support financial crime. For UK financial services to grow and compete, investors need to have trust in it. That’s why it’s vital we stamp out these unacceptable practices which risk the reputation and integrity of UK markets.”

Mako, after reviewing the findings, chose to settle the case and did not dispute the FCA’s conclusions. As a result, they received a 30% reduction on their fine under the FCA’s settlement discount scheme.

The Bigger Picture of Cum-Ex Trading

If you’re wondering why all of this matters, let’s break it down. Cum-ex trading is essentially a tax manipulation scheme where shares are traded around dividend dates in a way that allows parties to claim tax rebates they’re not entitled to—often in multiple jurisdictions. This practice isn’t just shady; it’s illegal. And the ripple effects are massive, touching everything from tax policy to financial market integrity.

The FCA has now imposed over £30 million in fines related to this form of dividend arbitrage, and this case against Mako brings the regulator’s investigation to a close. It’s been a long road, with several other firms already under the microscope, including Sapien Capital Ltd, Sunrise Brokers LLP, and ED&F Man Capital Markets Ltd.

For Mako, the violations weren’t just about failing to follow procedures—they breached two fundamental principles of the FCA’s regulatory framework. Principle 2 stresses that firms must operate with due skill, care, and diligence. Principle 3 requires firms to take reasonable care to organize their operations responsibly and effectively, with robust risk management systems in place.

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