The real cause of the Plus500 UK account freeze: An old boys club and fear of competition?

London’s financial markets regulatory structure is world renowned as a bastion of fidelity, security and ethics.

Indeed, corporate entities and private investors from across the globe look to the Financial Conduct Authority (FCA) as a prestigious regulator which presides over the non-bank activities in the world’s largest financial center with aplomb.

It would be churlish to insinuate that there could possibly be any hint of malintent within the FCA, just as within the long-established and highly polished companies that it overseas.

Or would it?

In May this year, Plus500 UK invoked an account freeze which applied to all of its customers, preventing trading, deposit or withdrawal until certain regulatory parameters stipulated by the FCA had been carried out. This action caused Plus500 Ltd (LON:PLUS) shares to drop by 28% overnight, and resulted in a long, drawn out period in which Plus500 had to report publicly on the status, generating lack of confidence among investors.

The question is, why did the FCA do this? The FCA usually does not impose any such measure on any firm, instead using a very passive methodology whereby a complaint is filed, to which the FCA responds by sending a letter to the company in question, stating that there has been an allegation of some form, and that the firm has an option to pay a fine with a 30% discount and settle it without any investigations, or to go to court.

British law firm Freshfields last year concluded that 97% of all of all complaints raised in the three year period between 2010 and 2013 were settled by payment without any investigation, regulatory action or court appearances.

So why the draconian action toward Plus500 UK?

FinanceFeeds researched this in detail and has discovered that some rival firms do not relish the thought of overseas competitors setting up shop on their territory, and have implemented methods by which to cause such companies commercial harm.

According to a number of sources close to the matter, Plus500 UK’s restriction was initiated by a series of competing companies having close relationships with FCA officials, and in some cases recruiting former FCA officials to work in departments dedicated to researching what could be deemed as malpractice by competitors in order that they can use their channels and connections to converse with officials in order to put a metaphorical spanner in their works.

Unlike the United States, where the domestic regulatory authority – the National Futures Association – requires that all firms submit daily electronic reports and if there are irregularities, or if a complaint is made, the compliance officer of the company concerned will be subjected to three months with an NFA official sitting next to him going through every record, the FCA resembles a ‘boys club’ which takes its subscription revenue and settlement revenue quietly, often without conducting any investigation at all.

The basis for the FCA’s instruction to Plus500 UK was that the regulator had concerns about the company’s checks when onboarding new clients, especially relating to Anti-Money Laundering (AML) procedures.

Plus500 does check the identity of all clients before opening account.

The company states:

“We use companies such as Experian and GB Group which are authorized by regulators to provide automatic online ID verification and are also used by our peers. We additionally do sanction list monitoring with World-Checks (a Thompson Reuters company) – all of these are done following sign up.”

By mid-June, following this action, Plus500’s valuation had declined to £459.6 million, almost half of the firm’s value just two weeks prior, rousing the interest of Teddy Sagi’s Playtech PLC (LON:PTEC) which entered into discussions with Plus500 with regard to acquisition.