Money-laundering check scandal surrounding City spread betting and trading firms deepens as new firm hit by allegations it dumbed down rules
The scandal surrounding money laundering checks among trading firms deepened last night after one of the City’s largest outfits was stung by allegations it ‘dumbed down’ rules to win more customers.
ETX Capital loosened its rules to make it easier for traders to join without having to submit passport details or face lengthy questions, a former insider told the Mail.
This could be in breach of guidelines set down by the regulator, the Financial Conduct Authority (FCA).
The whole spread-betting industry – one of the fastest-growing parts of the financial services sector – faces questions over the way it enforces money laundering rules on new customers.
Israeli group Plus500 has been mired in controversy after the FCA said its verification checks were not up to scratch.
The company was this week forced to suspend all its 25,000 UK customer accounts, after seven months of negotiations with the regulator, while it re-processes information from traders. But last night it emerged that the company’s arrival into the UK market in 2010 caused a wave of resentment among rival firms – which promptly followed suit to try to win new customers.
Plus500 began using ‘aggressive marketing’ and cold calls to attract new traders to its website, according to industry insiders.
Its checks, which have since been deemed inadequate by the FCA, allowed customers to open accounts and begin trading without carrying out proper verification.
‘Before Plus500 came to the market, the spread-betting industry prided itself on its professionalism,’ said one former ETX employee, who asked to remain anonymous.
The former staffer added: ‘For any spread better, retaining customers is a focus. All of the other brokers were looking to replicate their success… ETX said “why aren’t we doing stuff like this?”’
Advertising was ‘dumbed down’ to make it more appealing, and the company decided it needed ‘lower barriers to entry’ for new customers after ‘studying the Plus500 model’.
The ex-employee added: ‘Ramping up [sales]… means we were having to compromise on checks and risk’.Some staff, including some in its compliance division, left after being ‘disgusted’ by what the company was doing, it is alleged.
FCA rules state: ‘Firms must identify their customers and, where applicable, their beneficial owners, and then verify their identities.
‘Where a firm cannot apply customer due diligence measures, including where a firm cannot be satisfied that it knows who the beneficial owner is, it must not enter into, or continue, the business relationship.’
It also says companies that use electronic checks, such as using the electoral register, must ‘understand their limitations’. Trading firms must obtain enough information ‘to be satisfied that it understands the money-laundering risk’.
The FCA yesterday refused to confirm or deny whether it had opened an investigation into ETX. The watchdog last year investigated how the industry checked its customers.
A spokesman for ETX denied it had done anything wrong, saying it used the electoral role for verification. He said: ‘We verify the customers we have to FCA standards.
‘Our due diligence checks change on a regular basis because of changes in technology and the marketplace.’
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