Flawed oversight let trader mask losses with fake transactions

Day-to-day reporting, reconciliation and verification processes at Macquarie Bank in London had deficiencies that allowed an employee to record and amend 426 fictitious trades over a 20-month period. Denis O'Connor analyses what went wrong.

Denis O'Connor is a fellow of both the Institute of Chartered Accountants in England & Wales and the Chartered Institute of Securities and Investment. He was a member of the British Bankers' Association Money Laundering Committee from 2003-10 and a member of the Joint Money Laundering Steering Group's board and editorial panel between 2010 and 2016. He has been a frequent speaker at industry conferences on financial crime issues, both in the United Kingdom and abroad.

The Financial Conduct Authority recently fined the London branch of Macquarie Bank Ltd (MBL) £13 million for serious failings that allowed one of its staff to record over 400 fictitious trades. [1] From June 2020 to February 2022, Travis Klein, a trader on MBL's London Metals and Bulk Trading Desk (Desk) input fictitious trades into MBL's records in order to hide his trading losses. These trades were not detected earlier because of significant weaknesses in MBL's systems and controls, some of which the firm had previously been aware of. Nevertheless, MBL failed to put effective and timely plans in place to fix the known weaknesses. The regulator also banned Klein from the financial services industry for acting dishonestly and without integrity. [2] He would have been fined £72,000 without his application for financial hardship being successful. The fictitious trades cost MBL $57.8m to unwind. If MBL had taken timely action to resolve the gaps in their systems and controls, this cost could have been substantially reduced or avoided altogether.