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Britain’s financial watchdog has fined Macquarie Bank £13 million after one of its traders in London recorded more than 400 fictitious trades to hide its losses.
The Financial Conduct Authority said: “The fictitious transactions were not previously discovered due to significant deficiencies” in Macquarie Bank’s systems and controls. It added that the bank had previously been made aware of some of the weaknesses.
Travis Klein, a trader from Macquarie’s London metals and bulk trading arm, has been banned from the financial services industry after evading the bank’s controls without detection for more than 20 months.
The watchdog said Klein would have been fined £72,000 “had his serious financial hardship application been unsuccessful”.
Klein had recorded a large number of fake trades over a twenty-month period from June 2020 to hide the losses he had incurred. He passed several key internal controls, including a daily profit and loss reporting process.
“The same trader responsible for the fictitious trading was able to submit falsified broker quotes against which the profitability of their positions was assessed,” the FCA wrote.
Macquarie discovered Klein’s strategy to hide the losses in February 2022 and suffered nearly $60 million in losses to complete his trades.
According to the FCA, the Australian bank had previously been made aware of certain issues relating to its trading controls in 2020. It had devised a strategy called ‘Project Papa’ to address some of the recommendations, but the regulator found that it had failed to implement them properly.
Klein started working as a trader at Macquarie in its Sydney offices in 2017, before moving to the London office a year later. He devised a plan to hide his losses after he was told to reduce the risk of his book and refrain from taking on any more risk for a two-week period, a process referred to internally as “sitting on the couch ‘.
The scheme unraveled in February 2022 during a routine internal risk audit report when Macquarie discovered “what appeared to be fictitious trading activity”.
Klein, who resigned the day after his trading activities were discovered, told the FCA he came up with the plan because “he felt he couldn’t let him down”. [Commodity Markets and Finance] supervisors”.
The FCA said customers and counterparties were not affected by Klein’s activities and the fictitious transactions had no direct impact on the market.
Macquarie said it had made “a range of improvements” to its controls since the incident.