The Financial Conduct Authority (FCA) has fined Macquarie Bank’s London branch (MBL) £13 million ($25.3 million) for “serious failings” that allowed one of its employees to record over 400 fictitious trades.
According to the FCA, Travis Klein, a trader based in MBL’s London Metals and Bulks Trading Desk, was able to record and take steps to conceal over 400 fictitious trades in MBL’s internal systems in a bid to hide his trading losses between June 2020 and February 2022.
The authority on Tuesday explained that the fictitious trades were not detected earlier because of “significant weaknesses” in MBL’s systems and controls, some of which the firm had been previously made aware of.
According to the authority, MBL failed to put effective and timely plans in place to fix these weaknesses in spite of this knowledge.
“As a result, Klein, a relatively junior trader, was able to bypass three key internal controls without detection for over 20 months,” the FCA said.
The authority has banned the trader from the financial services industry for acting dishonestly and without integrity. If his serious financial hardship application had not been successful, the FCA said it would have also fined Klein £72,000.
Steve Smart, FCA joint executive director of enforcement and market oversight, said: “MBL’s ineffective systems and controls meant that one of its employees could, at least for a time, hide trading losses which cost the firm millions to unwind.
“This should serve as an example to those we regulate; risk can come from within. You need the right systems to identify it so it can be tackled early,” Smart said.
According to the FCA, the fictitious trades cost MBL an estimated US$57.8 million to unwind, but did not affect customers or the market overall.
“If MBL had taken timely action to plug these gaps in their systems and controls, this cost could have been substantially reduced or avoided altogether,” it said.
In response to the financial penalty issued to its subsidiary, Macquarie issued a statement on Wednesday to confirm that it takes the matter “very seriously”.
“Macquarie Bank Limited, London Branch, acknowledges the FCA’s final notice and the associated financial penalty. This follows Macquarie’s detection, in February 2022, of a period of unauthorised trading by an individual previously employed by Macquarie, which was self-reported by Macquarie to relevant regulators,” it said in a statement.
It also emphasised that the unauthorised trading was isolated to one individual.
“The unauthorised trading did not affect clients, or the market, and no financial benefit or gain was derived by Macquarie or any other party directly from the activity.
“We have focused significant resources on addressing learnings from the incident and implemented a series of improvements to our control environment in response to the incident.”
Earlier this year, following an Australian Securities and Investments Commission investigation, Macquarie was fined a record $4.995 million by the Markets Disciplinary Panel for failing to prevent suspicious orders being placed on the electricity futures market.
