Online Brokerages: Digital Cash Ripe For The Picking

We all know what phishing is and we know that the FFIEC mandated online banks to upgrade their access security soon…but how about online brokerage firms?

Popular online brokerages such as E*Trade Financial & Schwab have been bleeding millions in losses due to fraud in just the last year. Is there anything in place now or on the agenda to prevent such future loses?

TD Ameritrade lost $4 million in just one quarter last year because of identity fraud. E*Trade Financial claimed $18 million in losses for the third quarter this year directly because of fraud from Eastern Europe other places such as Thailand.

Today, there are about 10 million online brokerage accounts in the US, and if all these TV ads every 15 seconds for….”$8 stock trades at our firm” are any future indication, that 10mil is growing and will be much larger next year.

Now here the strange thing, Financial Institutions such as online banks are very regulated and rated on security (FFIEC Guidance on Internet Banking).

In fact Glenbrook’s Linda Elliott has been tracking their upgrades for some time now. Here’s a link to her most recent update (version 7) . Linda also points out there are only about 30 business days left in the year for financial institution’s to finalize their plans to comply. *Payment News

However, online brokerage firms are not AT ALL regulated or rated on their security to protect customer accounts.

I believe the SEC and the NASD will watch out for problems with commission fees or execution times but ‘account security’ is the gorilla in the room no one talks about. Again, security watch over client accounts is not regulated or rated so don’t be surprised next year to see a rise in these type of brokerage loses for online customers.

Getting an online brokerage to wire out funds with a Photoshop altered fax copy of a ID and a ’signature’ is not exactly hard to fake.

Let’s hope they start to pursue some top notch security for their online customers and put a stop to all that fraud because it is ultimately you and me the customers who pay for it in higher fees.