Macquarie Bank Fined, Trader Banned, Over Fictitious Trades

The UK’s Financial Conduct Authority (FCA), has fined Macquarie Bank just over GBP 13 million and banned Travis Klein, one of the bank’s former traders, for creating 400 fictitious trades to hide losses.

The FCA says that Klein, a “relatively junior trader” on the bank’s London metals desk, was able to bypass three key internal controls for 20 months up to February 2022, as he covered up losses of $57.8 million, and that Macquarie filed to identify them because of significant weaknesses in its systems and controls, some of which the firm had been previously made aware of.

Despite knowing of the weaknesses, the FCA says Macquarie failed to put effective and timely plans in place to fix them. If it had taken timely action to plug these gaps in their systems and controls, this cost could have been substantially reduced or avoided altogether, the FCA states.

Specifically, the FCA says Macquarie’s daily profit & loss reporting process was “ineffective” and failed to identify and deal with discrepancies. Additionally, the end of day futures reconciliation process failed to ensure that discrepancies were adequately managed because it excluded trades with future-dated clearing dates. The cancelled, amended and backdated (CABs)trades post-trade reporting control was also deficient in design and relied upon the equally flawed end of day process and a compensation control. This failure was exacerbated, the FCA says, by the poor functioning of a committee established to manage risks associated with CABs.

Finally, Klein was able to submit falsified broker quotes for use in the verification process, thus enabling him to hide his losses.

In addition to being banned, Klein was to be assessed a GBP 72,000 fine, but the FCA says he successfully applied for a serious financial hardship to avoid this.

“[Macquarie Bank’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,” observes Steve Smart, joint executive director of enforcement and market oversight 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.”

In a statement, Macquarie Group says, “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.

“The unauthorised trading was isolated to one individual,” it continues. “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. The incident was not financially material to Macquarie Group and was accounted for and noted in the Macquarie Group financial results for FY2022.

“Macquarie takes these matters very seriously and understands the importance to all stakeholders,” it concludes. “As noted by the FCA, we have displayed a high level of cooperation throughout their investigation. 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.”