What Really Caused Plus500's Share Price to Crash Today?

London Stock Exchange listed broker Plus500 (LON:PLUS) just sent out a statement to its investors regarding recent speculation following today's extraordinary price movement. The firm notes the market speculation that it has not paid its recent dividend and clarifies the Financial Conduct Authority (FCA) is in the loop.

While this statement lacks any mention of an official investigation, the Plus500 (LON:PLUS) share price drop today suggests that this is one of the repercussions that traders fear. Several months ago a report by The London Times has suggested that the company is under the U.K. watchdog's vigilant eye.

One of the major rumors today has been that Plus500 (LON:PLUS) has failed to deliver a scheduled dividend payment to its shareholders.

The company has issued an official statement denying the rumor. The company confirmed that it paid its final and special dividend of $65 million in full on Friday, May 15, as previously notified to the market. The firm also reminded investors that it currently has in excess of $88 million in cash reserves, excluding that held in client segregated client accounts.

No More Opening Accounts Just with Facebook?

In addition, the firm says shareholders should note that Plus500's UK subsidiary, Plus500UK Limited, has in recent weeks been implementing certain enhanced client on-boarding and Anti-Money Laundering (AML) Anti-Money Laundering (AML) Anti-money laundering (AML) is a term that describes laws, processes, and regulations that are intended to prevent illegally obtained funds from being disguised as income gained through legitimate means. The fundamental purpose of the AML laws is to help safeguard, detect, and report suspicious activity including the predicate offenses to money laundering and terrorist financing, such as securities fraud and market manipulation.Most exchanges have AML measures that include identity verification Anti-money laundering (AML) is a term that describes laws, processes, and regulations that are intended to prevent illegally obtained funds from being disguised as income gained through legitimate means. The fundamental purpose of the AML laws is to help safeguard, detect, and report suspicious activity including the predicate offenses to money laundering and terrorist financing, such as securities fraud and market manipulation.Most exchanges have AML measures that include identity verification Read this Term) processes, resulting in additional documentation checks being required on existing and new Plus500UK customer accounts.

This has led to an increased volume of documentation being reviewed by Plus500UK's client on-boarding team. The firm admitted that some Plus500UK customers are currently experiencing delays in receiving the necessary approval to open new accounts, open new trades on their existing accounts and withdraw funds.

Market talk from competitors of Plus500 (LON:PLUS) repeatedly communicated that the lax account opening procedure is presenting the brokerage with unfair advantages. Major foreign exchange and CFDs providers alongside spread betting companies are requiring a full set of documents before their clients can execute real money deals.

The broker attempted to reassure its investors by issuing a statement which reads, "only the Plus500UK regulated business is impacted, and the company will continue to offer its services to new and existing customers through its other regulated subsidiaries in Cyprus and Australia."

This was interpreted by the market as insufficient and shares dropped another 8%. The statement follows, "currently, 50% of Plus500's revenue is derived from Plus500UK, and 45% of Plus500UK's customers have passed Plus500's electronic verification process and are therefore allowed to trade."

The UK regulated business of Plus500 (LON:PLUS) remains a big chunk of the revenues of the company. Any further repercussions from the enhanced Know Your Customer (KYC) Know Your Customer (KYC) Know Your Customer (KYC) is the process via which the broker is verifying the true identity of its clients in order to comply with multiple regulations. KYC is used to assess the suitability of customers when it comes to anti-money laundering regulations, any type of financial fraud and determining whether they are potentially risky for the brokerage.In particular, KYC guidelines in financial services mandate that individuals make a cohesive effort to verify the identity, suitability, and risks Know Your Customer (KYC) is the process via which the broker is verifying the true identity of its clients in order to comply with multiple regulations. KYC is used to assess the suitability of customers when it comes to anti-money laundering regulations, any type of financial fraud and determining whether they are potentially risky for the brokerage.In particular, KYC guidelines in financial services mandate that individuals make a cohesive effort to verify the identity, suitability, and risks Read this Term) procedure to the broker's business remain uncertain. The full impact for new account openings will become known in the company's next trading update.

Those customers who are impacted are not able to open new positions until they are approved by the client on-boarding team, however, they are still able to close out open positions and to service these existing positions with additional margin.

As usual, under Plus500's AML procedures, existing customers (whether electronically verified or not) are unable to make withdrawals from their accounts until they have provided Plus500UK with fully compliant AML documents. Plus500UK has notified, and is in close dialogue with the FCA in respect of these changes to its AML processes.

Repercussions

Known for its automatic management systems, Plus500 relies on a very small staff in comparison to other brokers with the same number of clients and size of operations. If the regulator suddenly demands that the broker verifies the AML documents of all its clients, and 55% are still unverified, its limited staff, only used to verifying documents for withdrawals, might be overwhelmed with the sheer number of tasks.

Furthermore, the new AML requirements might press down on the broker's earnings. New staff might be needed to handle the additional work, increasing costs. Potential clients will be rejected for insufficient documentation or simply discouraged by the additional hassle, decreasing revenue. Investors familiar with Plus500's business model might be responding to this, leading to the massive stock drop today.