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April 25, 2014 5:59 pm
Information that stockbroking platforms collect about their customers has been in the spotlight after unpopular measures were taken by one company to satisfy regulatory requirements.
Execution-only platform Selftrade angered many existing clients by demanding updated personal information, ostensibly to satisfy itself and regulators that customers’ funds were earned legitimately.
In the form sent to individual retail customers, the company asked for detailed information about the sources of their wealth. Questions included how much money had originated from employment, investments, inheritance and assets, with a detailed breakdown requested for each.
“[Anti-money laundering] requirements have enhanced over time . . . [and] for some customers we need to confirm the source of their wealth,” said David Jeal, head of product management at Selftrade.
Share-dealing platforms are subject to the same anti-money laundering regulations as banks, said Brian Dilley, KPMG’s global head of anti-money laundering services.
According to guidance issued by the Financial Conduct Authority, financial companies must verify their customers’ identities and understand the “purpose and intended nature” of their relationship with the firm.
Where the money-laundering risk associated with a customer is higher – for example, if they are a “politically-exposed person” – companies must carry out enhanced due diligence checks.
“There is no requirement for platforms to obtain evidence of source of wealth for every client that they have,” says Mr Dilley. However, they are legally required to do so for higher risk customers.
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Perhaps most significantly for online-only platforms, this higher risk group includes non-face-to-face client relationships.
“[Online platforms] are an extremely good way to launder money,” says Jonathan Fisher QC, a barrister at Devereux Chambers. “Platforms have to make an assessment whether money has been obtained legitimately . . . I think they have to be prudent.”
But several Selftrade clients objected to the company’s extension of due diligence checks to existing customers. Many wrote to the FT complaining that the questions demand excessive levels of personal information and go well beyond those asked by other execution-only platforms.
As part of its account opening process, TD Direct Investing requests similar information from new customers about the source of their funds, including supporting evidence.
However, the platform – owned by Canadian bank Toronto-Dominion – does not require the same detailed descriptions and amounts involved for each component of a customer’s wealth, as Selftrade has.
Hargreaves Lansdown, the largest direct-to-consumer investment platform, says on its website that new clients can open a trading account in less than five minutes. The broker only requires new clients to submit personal details and pass an Equifax electronic identity verification check – an industry standard process, said Danny Cox, head of financial planning at Hargreaves Lansdown. Should a client “fail” this test, two qualifying identity documents must be provided to the company.
Selftrade has not taken on new customers since January 2013, when it voluntarily suspended new business following discussions with the Financial Conduct Authority’s predecessor, the Financial Services Authority. Existing customers have been unaffected by the suspension.
In its terms and conditions, Selftrade explicitly reserves the right to ask its customers to provide or update information and supporting documentation about themselves, their transactions or the source of their wealth, funds and income.
If satisfactory information or documentation is not sent within specified timescales, the company states that it may restrict access to accounts or decline to transfer accounts to another provider.
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