Selftrade, the execution-only stockbroker, has annoyed a large number of its customers by sending out a form asking for a lot of personal information about themselves. For example, several ShareSoc Members have contacted us to complain about the intrusive nature of the questions (which they consider a breach of privacy) and about the difficulty in completing the form due to the amount of detail required. It also generated a vociferous series of negative comments on Citywire after they mentioned the story similar to the controversy when Hargreaves Lansdown changed their charges.
It is undoubtedly the case that Selftrade have an obligation under the Money Laundering Regulations to ask some questions about the source of funds and under the regulations that apply to all financial institutions under the obligations known as “Know Your Customer (KYC)”. However, in this case they have asked such questions as the total net worth of the customer, over what time frame the wealth was created, in which countries, and if wealth was created from employment the details of such past employment, plus if wealth came from other sources such as inheritances then details of those are also required.
In effect they are asking for a very detailed report of a customers financial history back to the year when they were born – at least that seems to be what is requested. They are even imposing this obligation on all members of investment clubs who may have a very small financial interest in the account.
Needless to say many of their customers do not have such records, and do not feel it is justifiable to spend time providing this information when they have been clients of Selftrade or its predecessor firms for many years. There seems to be no discrimination between the duration of the customer relationship with the company or the size of the account.
Not only that, if the customer refuses to return the form they are threatened with having their account frozen, withdrawals may be blocked, and in addition any transfers to another broker will be blocked. In extremis it could mean these accounts being declared “dormant” or in default which might give the company an excuse to treat the assets in the account as forfeit.
Even if you decide to transfer your account to another broker, after completing the form, there are substantial costs associated with doing so because of Selftrade’s charging structure.
Now Selftrade was closed to new business in January last year. This is usually a step taken because the FCA is unhappy with some aspects of its operations. This is what Selftrade said at the time: “Following discussions with the FSA in December, Selftrade has raised a voluntary variation of permission with the regulator. The board of Selftrade has resolved to undertake a review to enhance some of the firm’s processes, which it is committed to completing as quickly as possible“. Whether this is connected to the latest events is unknown but the extent to which such information is requested is usually “risk-based”, i.e. the company should take into account their past experiences, the known profile of their clients and other matters. It also means they should target those customers most likely to be dubious based on what information is known about them, but this they don’t seem to have done.
Some customers have already complained to the Financial Ombudsman Service and it may be worth complaining to the Information Commissioner who looks after privacy and data protection issues more generally.
But in essence the company does have a right to ask reasonable questions so it is perhaps best to complete the form as best one can and then consider moving your account to another broker.
One aspect that Selftrade customers need to be aware of is that stockbrokers are like banks. They rely on the trust of their customers and once that is lost you know what happens – customers tend to rapidly depart thus undermining the financial viability of the business.
In the case of stockbrokers where clients are all in nominee accounts (as probably applies to Selftrade), you need to consider what happens if the broker goes bust, or into administration. There have been a number of past examples of this, and it typically creates enormous difficulties because the first thing the administrator does is freeze all the accounts – sometimes for months if not years, while they sort out who owns what. In addition, there can be discrepancies between what the clients think they hold, what the company holds in their records and the information in the Crest system or on the share register of the company. There can be a shortfall in essence which can be difficult to resolve and may require court adjudication. One of the common reasons for companies being closed to new business is inadequate record keeping being identified after a review by regulators, which might give cause for concern in this case.
ShareSoc has consistently warned about the legal dangers of nominee accounts in the past, and we would like to see them discouraged, or at least clients who open them being warned about the dangers associated with them. In addition we would like to see those holding ISA and SIPP accounts not being forced into nominee accounts as at present.
One point to bear in mind is if you do move to another broker, try to pick reliable and trustworthy ones, not necessarily the cheapest. In addition if you have to use a nominee account it may be best to pick a broker that is publicly listed in the UK so you can easily monitor its financial stability – there are several of them. Selftrade is the trading name of Talos Securities Ltd, a private company registered in England and Wales. It is reported as being a subsidiary of Boursorama, one of Europe’s leading online stockbrokers and part of the SociétéGénérale Group in France.