Macquarie fined £13m over employee’s fake trades

The London branch of Macquarie Bank has been fined £13 million after a trader in its London branch went rogue and created more than 400 “fictitious’ commodities trades.
The Financial Conduct Authority said that between June 2020 and February 2022, Travis Klein, of the bank’s London metals and bulks trading desk, was able to “record and take steps to conceal” hundreds of false trades in a debacle that exposed “serious failings” at the subsidiary of Australia’s Macquarie Group.
The fictitious trades, intended to cover-up Klein’s loss-making positions, were not detected earlier because of “significant weaknesses in [Macquarie’s] systems and controls, some of which the firm had been previously made aware of”.
• How Macquarie’s rogue trader lost $58m
The bank knew of the shortcomings but “failed to put effective and timely plans in place to fix them”, the regulator said, allowing Klein to bypass internal controls without detection for more than 20 months.
The fictitious trades cost Macquarie Bank an estimated $57.8 million to unwind but did not affect customers or the market overall, the regulator said. If the bank 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 added.
Klein, described by the FCA as a “relatively junior trader”, has been banned from financial services for acting dishonestly and without integrity. The regulator said it would have fined him £72,000 if not for his successful application relating to “serious financial hardship”.
Klein was a trader at the bank from August 2017, initially working in Sydney and moving to London in 2018. The fictitious trades were made “to conceal his actual loss-making positions”, the FCA said.
While not visible externally, 426 fake trades made by Klein led to incorrect positions and profits and losses being internally recorded and reported to the bank’s management.
Klein told the FCA that he started to book the fake positions to make it look like he was reducing the risk in his trading book after he was asked to stop taking new risks for a period and “de-risk” his book.
The bank discovered the dishonesty in February 2022 following a routine inspection. It was also found that Klein had deliberately amended broker quotes to show incorrect pricing in order to avoid his trading losses being identified.
Steve Smart, joint executive director of enforcement and market oversight at the FCA, said the 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. This should serve as an example to those we regulate; risk can come from within.”
Macquarie is an Australian multinational financial services group based in Sydney with assets under management worth more than A$900 billion. The group has invested in a swathe of infrastructure assets in the UK and until 2017 owned Thames Water, the crisis-stricken utility.
In a statement, 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.
“The incident was not financially material to Macquarie Group and was accounted for and noted in the Macquarie Group financial results for full year 2022.”
The bank added that it had “displayed a high level of co-operation throughout [the FCA’s] investigation’ and “implemented a series of improvements to our control environment”.