Stock broker ≠ Integrity

This summer, a client approached us with a request to assess the reliability of a brokerage firm. 

According to Article 3 of the Federal Law “On the Securities Market”, brokerage is the activity of carrying out a client's order to make transactions with securities and (or) to conclude contracts involving derivative financial instruments. Brokers give their clients access to the securities market and trade stocks on their behalf. To determine how trustworthy the company in question is, we implemented a variety of measures to achieve the best possible result while also gathering all necessary information about potential risks. The process also considered the specifics of securities market legislation, transactions, and broker-investor disputes. 

We began by reviewing the broker's official website, which is only available after registration. The website contained only two documents: a user agreement and a refund policy, which made it clear that the broker has the right to: 

• Refuse to provide services without explanation.
• Cancel trading operations.
• Cancel account deposits or withdrawals. 

Furthermore, investors who use this company's services bear all the risks of monetary losses that may occur as a result of delays in crediting funds to their accounts. 

At the same time, there is no phone number or address listed on the company's website, making it impossible to contact the broker's representatives. The existing communication channels (request a call back and e-mail) proved to be invalid. The website also lacks any company information that could identify it as a legal entity and/or confirm that such an organization exists in general. 

Next, we investigated the legality of this broker's activities in our country. It is worth noting that brokerage activity requires a special permit, which is issued by the Bank of Russia. If the broker does not have the required license, its activity on Russian Federation territory is illegal. Furthermore, a ban has been imposed on foreign organizations providing financial market services to our citizens in the country. Based on the results of the check in official sources, we concluded that the broker is not licensed. This means that its activities are illegal in Russia. 

It also turned out that this company is on the Bank of Russia's black list. This list was created specifically to reduce the risk of citizens and organizations becoming involved in illegal activities. For example, it includes businesses that show signs of a financial pyramid. At the same time, it was discovered that the previous pages of the broker's websites, to which the Central Bank of the Russian Federation refers, had been blocked, but this did not prevent it from creating a new one to attract more clients. 

In addition, the broker's relations with its clients are governed by the laws of a foreign state, namely the Republic of Vanuatu, and that a dispute would be impossible to resolve in our country. The Bank of Russia lacks the authority to impose measures on organizations registered in foreign jurisdictions. And, while Russian Federation citizens are free to reach an agreement, if a dispute arises, a claim must be filed at the broker's location. When we looked at the data from the regulator of the state whose jurisdiction the broker claimed in its own documents, we discovered that there is no information about its licensing there either. 

As a result, our client received a comprehensive list of risks, prospects in the event of a dispute, information on unfavorable factors, and conclusions based on the entire set of revealed facts as well as each individual block of verification. Thus, the broker's legal analysis assists the investor in ensuring comprehensive protection from financial risks, minimizing them in advance, and assessing the prospects for collaboration.