The UK Financial Conduct Authority (FCA) has fined Arian Financial £288,962.53 for failing to have appropriate systems and controls in place to prevent financial crime. This failure allowed its services to be exploited in trading and withholding tax schemes.
Initially, the regulator imposed a fine of £744,745; however, the High Court reduced the amount after Arian admitted responsibility and raised questions.
Exploiting European tax systems
Dividend-stripping, commonly known as cum-ex scandal, is a controversial and complex tax-related scheme. It involves multiple parties exploiting tax requirements in various countries to claim tax refunds they never paid. This practice has been particularly prominent in European countries, including Germany, Denmark, and Belgium.
According to the FCA, Arian executed over-the-counter trades of Danish and Belgian stocks on behalf of clients of the Solo Group, with trade volumes of approximately £37 billion and £15 billion respectively. The FCA-regulated platform received commissions of around £546,949.
However, the regulator pointed out that these trades were “circular,” which strongly suggests financial crime. In fact, Solo Group reclaimed £899.27 million and £188 million in withholding tax from Danish and Belgian authorities in 2014 and 2015 respectively. During the same period, it also received approximately £845.9 million and £42.33 million from these two countries.
“Arian failed to identify obvious warning signs,” said Steve Smart, FCA’s Director of Enforcement and Market Oversight. “The control measures implemented by firms we regulate are important safeguards against the abuse of our financial system for criminal purposes. Arian’s control measures fell short of our expectations.”
FCA crackdown on illicit activities
The FCA emphasized that the action against Arian is its seventh intervention in cum-ex trading schemes, resulting in a total of £22 million in fines imposed on individuals and entities involved in such schemes.
Last year, the UK regulator fined Nailesh Teraiya, former controlling person and CEO of Indigo Global Partners, £5.95 million and banned him from engaging in any regulated activities related to similar misconduct. Other entities facing such penalties include Sapien Capital, Sunrise Brokers, TJM Partners, ED&F Man Capital Markets, and Fortress Capital London.
