Macquarie Bank Fined $16M by FCA for Control Failures Enabling Fake Trades

The U.K.’s Financial Conduct Authority (FCA) has imposed a fine of over £13 million (approximately $16.3 million USD) on the London branch of Macquarie Bank Limited (MBL), an Australian-based financial institution.

The penalty stems from what the FCA described as "serious control failures," which allowed a trader to execute and conceal hundreds of fictitious trades over a period of 20 months.

The trader involved, Travis Klein, was banned from the financial services industry for dishonest and unethical behavior. Klein, a relatively junior employee on MBL’s London Metals and Bulk Trading Desk, fabricated over 400 trades between June 2020 and February 2022 to cover personal trading losses.

Klein was initially set to be fined £72,000 (approximately $90,277 USD) by the FCA, but his financial hardship application was accepted, resulting in the fine being waived.

The FCA’s investigation revealed that Klein was able to bypass three critical internal controls within the bank to carry out his fraudulent activities. According to the agency's findings, MBL’s systems suffered from deficiencies in risk management, including lapses in reporting, oversight, and reconciliation processes.

Although these shortcomings were flagged during both internal and external reviews in 2020, subsequent projects aimed at rectifying the issues were found to lack sufficient governance, the FCA stated.

In a press release, MBL emphasized its cooperation with the FCA’s investigation and noted that the incident was not financially material, nor did it impact clients or the market. “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,” the bank said.

While the FCA acknowledged MBL’s cooperation as a mitigating factor, it also criticized the bank for failing to address long-standing vulnerabilities in its control framework. The agency highlighted that it had issued two market watch bulletins in 2008, specifically warning firms about risks related to unauthorized trading.

Steve Smart, joint executive director of enforcement and market oversight at the FCA, commented on the incident, stating, “The firm’s ineffective systems and controls allowed Klein to hide trading losses that 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.”

Due to MBL’s early self-reporting and consistent cooperation during the investigation, the FCA applied a 30% discount to the fine. Despite this, the case underscores the importance of robust internal controls in preventing and addressing unauthorized trading within financial institutions.

By fLEXI tEAM