The sector in brief
Investment firms, brokers and dealers execute trades, hold client assets and arrange investments. In the UAE they are supervised by different authorities according to where they are licensed. The Capital Markets Authority supervises securities and commodities firms onshore, the DFSA supervises authorised firms in the DIFC and the FSRA those in Abu Dhabi Global Market.
Markets offer a respectable-looking route for money. Funds paid into an account and traded may be returned as proceeds of an investment, with a clean explanation. A firm that does not understand where the money came from, or who is really behind an account, can provide the cover without knowing it.
The sector is also exposed to market abuse, which overlaps with AML. Insider dealing, manipulation and pump-and-dump schemes produce criminal proceeds that need to be moved, and the firms that see the orders are often the first to see the pattern.
Where the risk sits
Cash in, trade, cash out
Funds are deposited, traded in ways that look like normal activity, and withdrawn as investment proceeds. Without a view of the source, the trade hides the origin.
Nominee and omnibus accounts
Accounts that hold assets for many beneficial owners, or for someone acting on behalf of an unnamed person, make it harder to see who is behind the trades.
Third-party funding and transfers
Money coming from or going to accounts that do not belong to the client is a standard warning sign.
Trades with no economic purpose
Buying and selling the same asset between connected accounts, or at prices that make no commercial sense, can move value from one party to another.
Cross-border clients and complex structures
International clients, offshore holding companies and trusts make it harder to establish ownership and source of wealth.
Market abuse proceeds
Manipulation and insider dealing generate profits that must be laundered. Trade surveillance and AML should connect.
Who supervises you
It depends on where you are licensed. The Capital Markets Authority supervises securities and commodities firms onshore, including broker-dealers. The DFSA supervises authorised firms in the DIFC, and the FSRA supervises investment firms, funds and brokers in Abu Dhabi Global Market. Your licence names the regulator and the activities you are allowed to carry out.
The supervisor decides the detailed rules for your licence category, so always read its current guidance alongside this page.
What supervisors expect
- A Compliance Officer and MLRO with experience of markets, enough authority to stop a trade or an onboarding, and access to the board.
- A business risk assessment that covers clients, products, markets, channels and countries.
- Client due diligence before trading begins, including the identification of beneficial owners and, for higher-risk clients, source of wealth and funds.
- Understanding of nominee and omnibus arrangements, and measures to look through them where the rules require.
- Screening of clients, owners and counterparties against sanctions lists with a record of how matches were handled.
- Monitoring of deposits, withdrawals and trading for patterns that make no sense, and coordination between trade surveillance and AML teams.
- Reporting through goAML, training, record keeping and independent testing.
Red flags to watch
- A client who deposits funds, trades very little and asks to withdraw them elsewhere.
- Payments from or to third parties with no clear connection to the client.
- Trades between accounts that appear to be controlled by the same person.
- A client who is indifferent to losses or to the costs of trading.
- Ownership that is layered through several jurisdictions without a clear reason.
- Pressure to open an account urgently or to skip documentation.
A worked example
Deposits from several people, one beneficial owner
A new client opens a trading account with a modest deposit, and over several weeks the account receives transfers from four different people, each described as a family member. The client trades lightly and then asks for the balance to be paid to an account abroad. The firm should treat the pattern as unexplained: find out who the family members are, why they are funding the account, whether any of them is the real owner and why the destination account is in another country. If the answers are not satisfactory, the Compliance Officer decides on a report and whether to restrict the account.
How Adventant helps
Questions answered
Are brokers and dealers responsible for checking where client money comes from?
Yes, in proportion to the risk. A firm that accepts a large deposit without understanding its origin, or lets a client trade through someone else's money, has a gap that supervisors will notice.
How should we handle omnibus accounts?
By understanding who sits behind them. Depending on the rules, you may need to look through the account to the underlying owners or satisfy yourself that the firm holding it has proper controls. The risk assessment should say which applies.
How are AML and trade surveillance connected?
They look at the same activity from different angles. Surveillance looks for market abuse and AML looks for laundering and suspicious funds. Sharing alerts and cases helps both.
When can we start trading for a new client?
Once due diligence is complete. If your rules allow limited activity while checks finish, the allowance is narrow and should be recorded. Starting first and checking later is a common supervisory finding.
Who decides whether to file a report?
The MLRO or Compliance Officer, after review. Front-office staff should escalate without delay and without telling the client.