Complaints are rising over delayed withdrawals due to AML doc rules

By: Tom Cleveland

When was the last time that you requested a withdrawal from your forex broker? If the number of complaints that we are receiving on our website is any indication, then there is a broad-based problem that traders are encountering today – Delayed processing of withdrawal requests. This type of problem is typically an early indicator that something may not be quite right with your broker. Your broker could be having financial problems, dealing with regulatory issues behind the scenes, trying to work down a large backlog of requests, or is resorting to outright fraud to stay alive.

The latter issue, the one about fraudulent business practices, was discussed in a recent article having to do with the Financial Conduct Authority (FCA) and its warning that these types of complaints were rising in the industry. The nature of the complaints that we are receiving has more to do with documents required to comply with various Anti-Money Laundering (AML) statutes around the globe. These rules are also sometimes referred to as “Know-Your-Customer” or “KYC” regulations. For any broker to open an account, it must verify your identity by requesting a number of documents at the outset and then keeping those documents up to date over time.

Problems arise when a withdrawal request is submitted and someone in the compliance area of the broker must review the KYC documentation to determine its veracity. In most cases, very little in the way of resources have been devoted to this activity, such that it may be the first time that human eyes have actually reviewed the pertinent documents. Across the globe, regulatory agencies have become fixated on these compliance rules. Many high-profile firms, even ones traded on national stock exchanges, have been found guilty and punished severely over these types of infractions. Both domestic and international law mandate these procedures. There are no exceptions. Brokers must be ever vigilant.

What exactly do the laws require of a broker for AML/KYC documentation?

Laws to prevent the illegal flow of funds across the world’s banking infrastructure are nothing new. The onset of terrorist activities after the millennium crossover only heightened attention in this area, and the legislation that followed mirrored the growth cycle of retail forex trading, if only by coincidence. Countless consumers have been offended when brokers have requested specific personal identity information, but the brokerage industry must comply with the law. If you fear identity theft, then be sure to read your broker’s Privacy Policy. Your data will be encrypted and protected.

U.S. citizens are familiar with the Patriot Act and its many requirements. Most all other nations have adopted similar laws to protect your rights and prevent AML activities from happening. The law specifies that both your identity and address must be validated by appropriate documents. If you pay by a credit or debit card, copies of the front and back of the card, with just the last four digits displayed, must be submitted to match the previous documentation.

Here is an excerpt from just one regulatory agency’s guide for identity verification:

“A Member (Broker) must obtain the following minimum information before it transacts business (e.g., introduces or opens an account or acts as counterparty) with a customer:

  • For individuals, the customer's name, date of birth, and personal or business address;
  • For customers that are not individuals, the customer's name, principal place of business, local office or other physical location;
  • For U.S. persons, the customer's social security number or taxpayer identification number; and
  • For non-U.S. persons, a U.S. taxpayer identification number, a passport number and the issuing country, an alien identification card number, or the number and issuing country for any other government-issued document that shows nationality or residence and contains a photograph or similar safeguard.

In addition to obtaining this minimum information, the Member (Broker) must take steps to verify the customer's identity. You do not have to verify the customer's identity before transacting business with the customer but must do so within a reasonable time before or after the first business transaction. The procedures for verifying the customer's identity should:

  • Describe those situations where documents will be used to verify identity and list the documents that will be used (e.g., drivers license, passport, certified articles of incorporation, government-issued business license);
  • Explain when non-documentary methods will be used either instead of or in addition to looking at documents and describe those non-documentary methods (e.g., contacting the customer at the telephone number or address provided by the customer, comparing the information provided by the customer with information from a consumer reporting agency, checking references with other financial institutions);
  • Include a mechanism for identifying customers that may be high money laundering or terrorist financing risks (such as customers from particular geographic locations);
  • Provide a means for notifying customers that the Member (Broker) will ask them for information to verify identity; and
  • Describe what the Member will do if it cannot form a reasonable belief that it knows the customer's true identity.”

It is also important to note that “personal address” means your actual place of residence, not a P.O. Box or company address. If the account is a joint account, then two sets of documents must be submitted. Your broker will disclose his specific requirements on its website. You must comply to the letter, or you will encounter problems down the line, perhaps, when you make a withdrawal request. If you are confused, then connect with Customer Service for assistance. It is their job to get your documentation in order.

What happens when a broker does not comply? The Plus500 Fiasco…

During routine audits of financial institutions and brokers, regulatory agencies review much more than just AML/KYC compliance. For your benefit, they have oversight over registration matters, customer disclosures, marketing practices, capital adequacy, segregating client deposits, account management, transaction order processing, internal controls, recordkeeping and reporting, and a variety of other standards for best business practices, including knowing your client and preventing money laundering.

When an audit turns up discrepancies and the guilty firm does not correct the problems within the time allowed, then there can be Hell to pay. One high-profile example of this scenario occurred during 2015, nicknamed the “Plus500 Fiasco”. Plus500, an online Contracts for Difference (CFD) trading facility provider, was a growth miracle to behold. Founded in 2008, it had quickly risen to apparent stardom, experiencing hyper-growth and becoming a hot item on the London Stock Exchange in 2013.

The rapid rise of Plus500 had not gone unnoticed by regulators. The broker had already pleaded guilty to reporting infractions in 2011 and was fined £250,000. During a follow-up review over 2014/15, additional infractions were found in the Plus500 documentation department. Certain “client on-boarding and Anti-Money Laundering processes” were found to be woefully deficient. The FCA gave the firm several months to correct the shortfalls, but staff at Plus500 dragged their feet, almost daring the regulator to back off.

For many brokers, especially the smaller ones, operating budgets are tight. Compliance is a part of general overhead, and, as such, it is a low priority in the scheme of things. With minimal resources, shortcuts are often made. Many firms wait until a withdrawal request arrives to collect the necessary documents, a process that creates more delays, but may only have to be performed for a small percentage of the client base. High casualty rates and sign-up bonus restrictions eliminate or delay most withdrawals from ever being made in the first place. The regulations, however, state that a portion of the data must be gathered before the account is opened, with the balance occurring shortly thereafter.

In the case of Plus500, the defalcations were not addressed in a timely manner. The FCA did not back off or accept excuses. The FCA took a hard line and froze trading accounts on the 18th of May. As reported here, “These freezes also came with prohibitions on any withdrawal requests until identity documentation issues could be resolved to the FCA’s satisfaction. Open positions could be closed, but that was about it.” Shares for Plus500 fell like proverbial lead balloons, leaving shareholders with a cumulative paper loss of some $650 million. Corrections have been made, but the damage has been done and cannot be undone.

What should I do if my withdrawal is being delayed due to bad AML/KYC docs?

First, make sure that you have followed your broker’s instructions to the letter. Get Customer Service involved, if you need assistance. You may also want to check other Internet complaint blogs to see if others are complaining about the same thing. The Plus500 Fiasco sent a shockwave through the forex industry, alerting every broker to get its collective act together. Many brokers could be way behind in their compliance efforts, and you may have one that needs more time or is dealing with an angry regulator.

Delays in processing withdrawal requests, however, can result for a number of other reasons, as well. Bonus restrictions are another likely culprit. Read the fine print and see if you have complied with the broker’s rules. Delays can also give a broker time to convince you to stay with them or add to your account, not withdraw. The forex industry is very competitive, and it costs a lot less to convince someone to stay than it does to find a new customer replacement.

Unfortunately, delays can also be the first sign that a broker is having financial problems or that the company is engaged in fraud. The process can become much more difficult if your broker is located in another country, where regulatory oversight is poor at best. Do not waste time trying to enforce your legal rights in a foreign jurisdiction. Many have tried, but all claim it to be an exercise in futility. If you have the slightest doubt about your current broker, now may be the right time to make a small withdrawal request, just to test his responsiveness. If you have a new broker, keep transaction levels to small amounts, and then test the withdrawal process.

Concluding Remarks

Complaints related to broker requests for AML and KYC documentation are on the rise. Under these conditions and when a withdrawal request is delayed, it is easy to believe that you have been victimized by some type of forex scam. Before overreacting, check the specific requirements from your broker. Make sure that you have complied, as instructed. If you feel you have a legitimate gripe, then contact the local authorities. In any event, it may be time to review your broker and change, if deemed appropriate.

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