30 June 2023
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Latest FCA cum/ex enforcement shows the FCA remains consistent in its approach (ED&F Man Capital Markets Ltd)

To The Point

When it comes to cum/ex, the FCA has been focusing on regulatory matters rather than criminal investigations. In its latest enforcement action, the FCA found breaches of Principles 2 and 3 of its Principles for Businesses (lack of due skill, care, and diligence and inadequate consideration of risks). The Final Notice leads us to conclude that the FCA's focus on cum/ex trading cases will likely continue in a similar vein for some time to come.

Cum/ex trading (dividend arbitrage equity trading) continues to generate headlines around Europe. In Germany and Denmark in particular, after many years of litigation of both an administrative and criminal law nature, the tax authorities continue to pursue investigations on multiple fronts. In the UK, the Financial Conduct Authority (FCA) issued the latest in a series of regulatory decisions against UK firms involved in such trading. Below, Addleshaw Goddard LLP's Global Investigations partner, David Pygott, and senior knowledge lawyer, Gilly Bradbury, discuss the FCA’s enforcement action against ED&F Man Capital Markets Ltd (MCM).

This analysis was first published by Lexis®PSL and is republished with permission. The original article, published on 16 June 2023 can be accessed here (subscription required).

Background to cum/ex trading and why it is in the spotlight?

Dividend arbitrage equity trading can take numerous different forms, but as a strategy fundamentally it seeks to take advantage of the difference between the value of shares with (cum) dividend and without (ex) dividend.

In an aggressive form, which was deployed across a number of EU Member States between 2011 and 2017, share trading was carried out in jurisdictions in order to take advantage of tax treatment, minimise withholding taxes and/or to enable reclaims of withholding tax, which have subsequently proven controversial.

As a strategy, cum/ex trading has been a focus not only of investigative journalism but also criminal, regulatory and civil/administrative investigations in different jurisdictions across Europe.

The FCA's role in the UK
FCA final notice
Lessons from the latest case

To the Point 

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