Macquarie Bank’s London branch has been fined £13m by the UK’s financial watchdog for “serious failings” that allowed one of its junior traders to record more than 400 fictitious trades over a period of 20 months.
The Financial Conduct Authority said that Travis Klein, a trader based on the Australian investment bank’s London metals and bulks trading desk from August 2017, had concealed the fictitious trades in a bid to hide his trading losses between June 2020 and February 2022.
The fictitious trades were not spotted earlier because of “significant weaknesses” in Macquarie Bank’s systems and controls, some of which the company had been previously made aware, the financial watchdog said. Despite knowing of these weaknesses, the bank failed to put effective and timely plans in place to fix them, according to the FCA.
As a result, Klein, a relatively junior trader, was able to bypass three key internal controls for more than 20 months. The FCA has banned him from the financial services industry for acting dishonestly and without integrity; it would also have fined him £72,000 if his application for serious financial hardship had not been successful.
The fictitious trades cost Macquarie an estimated $57.8m (£46m) to unwind, but did not affect customers or the market overall. The FCA argues that if the bank had acted more quickly to plug the gaps in its systems and controls, it could have substantially reduced this cost or avoided it altogether.
Steve Smart, the joint executive director of enforcement and market oversight, said: “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.”
Macquarie said it had discovered Klein’s unauthorised trading in February 2022 and reported it to the relevant regulators. The trader has since been sacked.
The bank said: “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.
Macquarie said it took these matters “very seriously”, adding: “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.”
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Macquarie would have been fined £18.6m had it not cooperated with the financial regulator.
The FCA is under mounting pressure to reform itself. It has been described as “incompetent at best, dishonest at worst” in a damning report by MPs and Lords that called for a big shake-up of the financial watchdog.