The UK's Financial Conduct Authority (FCA) has fined Macquarie Bank Limited's (MBL) London branch £13 million ($16.4 million) for serious control failures that allowed a junior trader to conceal hundreds of fictitious trades over a 20-month period, resulting in losses of $57.8 million.

Macquarie Fined £13 Million over Junior Trader’s Fictitious Deals

The regulatory action stems from the activities of Travis Klein, a former trader on Macquarie's Metals and Bulks desk, who recorded more than 400 fictitious trades between June 2020 and February 2022 to hide mounting trading losses. Klein, who joined the bank as a graduate in Sydney before moving to London, has been banned from the UK financial services industry.

“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.” said Steve Smart, joint executive director of enforcement at the FCA. “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.”

The investigation revealed that Klein exploited weaknesses in three key control systems, including profit and loss reporting, end-of-day reconciliation processes, and trade amendment monitoring. Despite previous external reviews highlighting these vulnerabilities, Macquarie failed to implement effective remedial measures.

Klein's scheme began to unravel in February 2022 when an internal routine risk controls report detected suspicious activity. The trader admitted to the misconduct when confronted and resigned immediately. While the fictitious trades resulted in substantial losses for Macquarie, they did not impact external markets or clients.

The FCA noted that Klein would have faced a personal fine of £72,600, but this was waived due to evidence of serious financial hardship. The bank's fine was reduced by 30% from an initial £18.6 million after agreeing to settle early.

The case highlights the ongoing challenges financial institutions face in maintaining effective internal controls, particularly as trading systems become more complex and sophisticated.

Macquarie Bank Limited (MBL) is an Australian-incorporated company and part of a global financial services group. Operating in the UK through its London Branch, it has been authorized by the FCA since December 2001.

Macquarie Bank vs. ASIC

This is not Macquarie Bank's first encounter with regulatory scrutiny. In 2022, the Australian Securities and Investments Commission (ASIC) filed a lawsuit against Macquarie Bank Ltd, alleging issues with its cash management accounts that enabled third-party access, including financial advisers.

One case involved Ross Andrew Hopkins, a convicted financial adviser, who exploited the system to withdraw $2.9 million through bulk transactions authorized by fee agreements. Hopkins pleaded guilty to 15 offenses related to unauthorized withdrawals. In response, Macquarie Bank reimbursed Hopkins’ clients with approximately $3.5 million.

Another Day, Another Fine

Just yesterday (Monday), the FCA fined another big bank institution, namely Barclays. The institution agreed to pay £40 million ($50 million) for failing to properly disclose its arrangements with Qatari investors during emergency fundraising efforts amid the 2008 financial crisis. Barclays agreed to the fine, marking the conclusion of a regulatory dispute that began in 2013 when the FCA issued warning notices against Barclays PLC and Barclays Bank PLC.

The fine, initially set at £50 million, was reduced after Barclays withdrew its appeal to the Upper Tribunal.

This settlement follows the collapse of a separate criminal case brought by the Serious Fraud Office (SFO) against Barclays and its former executives. Those implicated included former CEO John Varley, former Middle East investment banking chairman Roger Jenkins, former executive Thomas Kalaris, and former European head of financial institutions Richard Boath. These charges stemmed from a five-year SFO investigation into their roles in the Qatari investment deal.