Over seven months ago, Mark Steward, Executive Director of Enforcement and Market Oversight at the UK Financial Conduct Authority (FCA) announced that the FCA had been working closely with European authorities “for some time” on investigations into “substantial and suspected abusive share trading” in London’s financial markets. This trading activity allegedly supported dividend stripping tax avoidance schemes that caused losses of €55 billion in tax revenues across Europe. 

As we await the outcome of the FCA’s investigations, which were said in February 2020 to be “very close to their conclusion,” there has been an acceleration in related enforcement and civil action across Europe including; arrests and convictions which we expect to continue for some time.

This article focuses on the risks and recommended actions for asset management firms which have either participated in, or otherwise been exposed to, dividend arbitrage schemes. While dividend arbitrage can represent a legitimate tax avoidance strategy, in the current regulatory and enforcement climate firms engaging in such practices would be well advised to check their historic transactions and exposure and confirm their policies and procedures are effective in detecting, and preventing, future abuses.