Macquarie fined $25m over 400 fake trades

The UK's Financial Conduct Authority (FCA) has fined Macquarie Bank's London Branch (MBL) $25 million (£13m) for enabling one of its employees to record over 400 fictitious trades over a 20-month period.

The fictitious trades also cost MBL an estimated US$58 million ($89 million) through remediation processes.

The FCA said that from June 2020 to February 2022, Travis Klein, a relatively junior trader from MBL's metals and bulks trading desk, issued 426 fictitious trades on the internal systems of MBL.

The fictitious trades were designed by Klein to conceal his actual loss-making positions, the FCA said, which led to incorrect positions of profits and losses recorded and reported.

The trades did not have any effect on the market.

In relation to the incident, the FCA has banned Klein from the financial services industry; he would have been subjected to a fine if his application for serious financial hardship had not been successful.

Klein initially worked in the same division in Sydney from August 2017 and transitioned to the London branch in October 2018.

Macquarie detected the issue on 23 February 2022 and reported the misconduct.

Macquarie Group issued a statement stating the organisation takes these matters very seriously and has been co-operating with the investigation.

"We have focussed significant resources on addressing learnings from the incident and implemented a series of improvements to our control environment in response to the incident," MBL said.

This is despite the FCA calling out MBL's failure to resolve known weaknesses within its systems in a timely manner.

"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," the FCA said.

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

The totality of the fine would have resulted in a larger sum, but MBL agreed to resolve these matters and so qualified for a discount.

"If MBL 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 continued.

Further, Macquarie has however assured the incident occurred in the UK and "is unrelated to Macquarie's Australian retail banking business."

"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," the statement said.

"The incident was not financially material to Macquarie Group and was accounted for and noted in the Macquarie Group financial results for FY2022."