FCA fines Bastion Capital London Limited £2.5m for serious financial control failings

Bastion Capital London Limited (in liquidation) has been fined £2,452,700 by the Financial Conduct Authority (FCA) due to serious financial crime control failures related to cum-ex trading. The company neglected to effectively manage the risk of being involved in fraudulent trading and money laundering activities.

During the period between January 2014 and September 2015, Bastion executed trades amounting to approximately £49 billion in Danish equities and £22.5 billion in Belgian equities on behalf of clients from the Solo Group. These trades were conducted in a manner that strongly indicated involvement in financial crime. It appears that the purpose of these trades was to facilitate withholding tax reclaims in Denmark and Belgium. Bastion received a commission of £1.55 million, a significant portion of the firm's revenue during that period.

Moreover, Bastion carried out a series of trades on behalf of 11 Solo Clients within a four-day period. These clients then executed opposite positions shortly after, but at significantly different prices. As a result, one Solo client, Ganymede Cayman Ltd (an entity fully owned by the Solo Group's controller), incurred a loss of €22.7 million, while the remaining 10 Solo Clients benefited from this arrangement.

Bastion either ignored or failed to notice several warning signs associated with these trades, which lacked any apparent economic purpose except for transferring funds from the Solo Group's controller to business associates. Bastion should have assessed the financial crime risks when onboarding these Solo Clients and when executing the trades.

Steve Smart, Joint Executive Director of Enforcement and Market Oversight, stated, “Bastion earned substantial fees by executing trades on behalf of the Solo Group that ultimately aimed to make illegitimate tax reclaims from the Danish and Belgian authorities. They failed to identify clear indicators that should have alerted them to the risk of involvement in financial crime. It is crucial for firms to effectively manage these risks.”

This case marks the fifth instance where the FCA has taken action regarding cum-ex trading and forms part of the FCA's broader efforts to address cum-ex dividend arbitrage cases and withholding tax (WHT) schemes. The FCA has actively collaborated with global law enforcement authorities in this regard. The fines imposed by the FCA on firms involved in this trading have surpassed £20 million, considering that these firms earned over £7 million in fees.

As Bastion did not dispute the FCA's findings and agreed to settle, it qualified for a 30% discount under the FCA's Settlement Discount Scheme.