The FCA has fined the London Branch of Macquarie Bank Limited for serious control failures that enabled a relatively junior trader to conceal a large number of fictitious trades. Macquarie settled early and therefore qualified for a discount of 30%. Without this, the fine would have been in excess of £18 million.
From June 2020 until discovered in February 2022, Travis Klein, a trader on the Metals and Bulks Trading Desk had recorded 426 fictitious trades on Macquarie's internal systems in order to conceal trading losses he had incurred. When confronted, he almost immediately resigned. He has since been prohibited by the FCA. Further, had he not provided verifiable evidence that the imposition of a financial penalty of any amount would cause him serious financial hardship, the FCA says that it would have fined him some £103,000.
The FCA found that, in breach of Principle 3 (management and control), the fictitious trading had not been prevented or detected earlier than it was due to deficiencies in Macquarie's systems and controls relating to monitoring and oversight of trader positions. The failings themselves are naturally quite particular to Macquarie, and they include issues related to the design of the systems, as well as to the nature of the human involvement in their operation. In addition, there were further failures in the risk management framework which contributed to the continuation of the deficiencies. Most notably, a project designed to address issues identified from earlier reviews failed to have the appropriate governance arrangements in place to deliver the outcomes effectively. The fictitious trades did not affect customers or the market overall. However, they cost Macquarie almost $58 million to unwind.
The FCA deemed the failings to be at Level 4 (where Level 5 is the most serious) and ultimately fined the bank just over £13 million.
Comment
In common with so many other trader frauds, this trader's actions stemmed from a desire to conceal his trading losses.
Macquarie did not cover themselves in glory with their relevant systems and controls. By contrast, after discovery of the trades, Macquarie clearly acted in a way that pleased the FCA. In a moment of high praise, the FCA described the bank as having consistently displayed "a high level of cooperation" during the investigation, which was described as having "extended into how it conducted itself during settlement". Having described it in that way, the FCA may not then have done itself any favours by only affording a decrease in the proposed settlement of 5% when aggravating and mitigating factors were weighed, and then doubling the total figure to meet its objective of credible deterrence. This Notice may well make firms in Enforcement question how much financial credit the FCA would give to them for such a high level of cooperation.