FCA fines bank £13m for "serious control failures" leading to fictitious trades

The FCA has fined Macquarie Bank Limited's London Branch (MBL) £13m for serious failings that allowed one of its employees to record over 400 fictitious trades.

From June 2020 to February 2022, Travis Klein, a trader based on MBL’s London Metals and Bulks Trading Desk, was able to record and take steps to conceal over 400 fictitious trades in the Bank’s internal systems in a bid to hide his trading losses.

The FCA found 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. Despite knowing of the weaknesses, the regulator says MBL "failed to put effective and timely plans in place to fix them".

As a result, Klein, a relatively junior trader, was able to bypass three key internal controls without detection for over 20 months. The FCA has banned Klein from the financial services industry for acting dishonestly and without integrity and would have fined him £72,000 if his application for serious financial hardship had not been successful.

The fictitious trades cost MBL an estimated USD $57.8m 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, the FCA says this cost could have been substantially reduced or avoided altogether.

Steve Smart, joint executive director of enforcement and market oversight at the FCA, 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."