UT-2022-00097 - [2024] UKUT 00352 (TCC)

On 5 August 2022 the Financial Conduct Authority (“the Authority”) through its Regulatory Decisions Committee (“RDC”) issued a decision notice (the “Decision Notice”) to Arian Financial LLP (the “Applicant”).

In the Decision Notice, the Authority decided that, between 29 January 2015 and 29 September 2015 (the “Relevant Period”), the Applicant (i) had inadequate systems and controls to identify and mitigate the risk of being used to facilitate fraudulent trading and money laundering in relation to business introduced by four authorised entities known as the Solo Group, thereby breaching Principle 3 of the Authority’s Principles for Businesses (“Principle 3”) and (ii) breached Principle 2 of the Authority’s Principles for Businesses (“Principle 2”) as it did not exercise due skill, care and diligence in applying its Anti-Money Laundering policies and procedures, and failed properly to assess, monitor and mitigate the risk of financial crime in relation to the Solo Clients. The Authority decided to impose on the Applicant a financial penalty of £744,745 in respect of such breaches.

The Applicant acted as an interdealer broker. It was introduced to and onboarded 166 clients (the “Solo Clients”) and, on behalf of those clients, it executed extremely high volumes of purported over-the-counter equity trades to the value of approximately £37 billion in Danish equities and £15 billion in Belgian equities. The purpose of the purported trading was to enable the Solo Group of companies (the “Solo Group”) to make withholding tax reclaims from the Danish and Belgian tax authorities. Those reclaims led to those tax authorities making payments of almost £900 million. There was no evidence of ownership or custody of the shares in question by the Solo Clients, or of settlement of the relevant trades. Together with the high volumes of shares which were purportedly traded, the Authority considers this to be suggestive of sophisticated financial crime on an enormous scale.

On 1 September 2022, the Applicant referred the Decision Notice to the Tribunal. The Applicant does not dispute that it breached Principles 2 and 3, as described above, but it contests the amount of the financial penalty sought to be imposed by the Authority. The Applicant contends that the Authority has failed to apply the Authority’s own policy for the calculation of financial penalties set out in DEPP 6.2 of the Authority’s Handbook or its previous decisions and overstated the seriousness of the breaches committed by the Applicant. As a result, the Applicant contends that the penalty sought by the Authority is disproportionate, unfair and unjust.