Stockbrokers carry out transactions in securities with regulated market counterparties, as agent for customers or proprietary trading on their own accounts.
Some stockbrokers deal with high volumes of low value customer transactions, whereas others direct their services towards higher net worth customers, and thus have fewer customers.
Whilst stockbroking might be regarded as being of lower risk compared to many financial products and services, the risk is not as low as in providing investment management services to the same types of customer from similar jurisdictions.
The Money Laundering and Terrorism Financing (ML/TF) risks associated with stockbrokers include:
- Stockbroking customers may adopt a variety of trading patterns making the identification of unusual behaviour difficult;
- Customer can quickly buy and sell in the markets which may create breaks in the audit trail;
- The company is offering no advice and may have little or no knowledge of a customer’s motives;
- Customers may spread their activities across a variety of brokers for perfectly valid reasons, and often do. Each broker may therefore actually have little in terms of transaction history from which to identify unusual behaviour; and
- Many firms provide stockbroking services on a non face-to-face basis, including via the internet.
Stockbrokers must ensure the organisation conducts a comprehensive ML/TF risk assessment to identify, assess, mitigate and manage ML/TF risk exposures as a critical first step in complying with AML/CFT laws.