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08-09-2021 | Forex Education

Why User Identification and Verification Are Vital for Trading?

Do you want to invest in stocks? In order to trade on the market, you will need an online broker. A brokerage company helps you purchase and sell securities. They are involved in acting as a liaison between buyers and sellers. There are many different ways to invest. You may do it via cellphone, computer, or on your smartphone. 

Most brokerage companies charge per order, whether a purchase or a sell. With no physical location, online brokerages may have no office at all. The more reliant on the internet, people are more likely to be the victims of online assaults. That's exactly right.

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ID Verification Requirement for Brokerage Firms

Because of the new data collection regulations imposed by the US government, Brokers gather personal information from their clients. A legal entity may have tax identification and financial details associated with it. 

Although new consumers and long-term customers of a company are subjected to different rules when it comes to disclosing information, both groups of customers must abide by rules set by an SRO. To meet their Know Your Customer (KYC) and Anti-Money Laundering (AML) requirements, they must have a complete understanding of the business and persons they are doing business with.

While there are many aspects why ID authentication is critical for brokerage companies, here are a few of them:

To Fulfill Suitability Law

Under FINRA suitability and SRO regulation, a broker should have a credible reason for saying security is appropriate for a client when he advises that customer buys or sells that asset.

To Keep Record of Requirement

Section 31 of the SEC rules mandate brokerage companies to keep track of each account that they have with a single client. This should include the basic identification data, including name, address, date of birth, and government-issued identification. 

Evaluate all these facts first. As a result, ID validation plays a role here. In order to ensure that an applicant is not misleading about his location, brokerages require an online address verification service. 

For brokerage companies, verifying an online ID is critical to combatting fraudsters, as well as fulfilling SEC record-keeping requirements (Securities and Exchange Commission). Brokers must attempt to locate and authenticate the data of customers to comply with fair-dealing rules.

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Prevent You From Illegal Financing

Financial laundering is done to hide the money flow or to hide the money obtained from illegal activities. Felons frequently use financial institutions to launder their illegal funds in other nations, especially for funding terrorist activities. 

To be fair, the brokerage companies are vulnerable to this too. Thus, in order to comply with the CFT (Counter Financing of Terrorism) requirements, brokerage companies must be familiar with their clients and know where the exchange is occurring.

To Counter Fake Identities and Frauds

The number of identities hijacked in 2018 was estimated to be 3 million, with 1.4 million of those identity thefts linked to fraud. Due to unlawful activity, cybercriminals create false aliases to get bank accounts in order to utilize them for their nefarious operations. 

Banking firms, as providers of financial services to criminals, are the most frequent targets of identity fraud. KYC and AML procedures are beneficial to financial organizations because they assist mitigate the risk associated with having many clients. 

Embezzlers and steal information may be found at the beginning of the process and are able to assist businesses by solely dealing with genuine companies.

As a result, financial brokerage companies (both online and offline) are often targeted by scammers. One of the reasons why money laundering companies make money is because the products they provide are used to hide black money or to move cash to terrorists discreetly. 

As a result, investment advisors strongly recommend that brokerage companies do extensive KYC and AML monitoring on their clients. This enables them to entice a quality clientele and achieve regulatory compliance.

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