The most common causes of freezing broker account are compliance checks (accounting for 38%), suspicious trading patterns (29%), and security concerns regarding money (22%). According to the 2023 Global Financial Risk Control Report, regulated websites’ opportunities of triggering account freezes by anti-money laundering regulations (including FATF requirements) are 0.07% per working day on average, and the average processing cycle is 14 working days. For instance, a user account was banned for 17 days due to the non-update of the KYC file (unverified over 24 months), missing one arbitrage opportunity and incurring a loss of 52,000 yuan. As a result, the platform had to incur a FINRA fine of 120,000 yuan.
Abnormal fluctuations or high-frequency trading will most probably lead to risk control. When the intraday trading volume exceeds 50 times the net asset value of the account (for example, an account with a net asset value of 100,000 yuan and an intraday trading volume of 5 million), the freezing probability rises to 12%. In March 2024, a user was marked as suspected manipulation by the system when making 270 US stocks trades within an hour (industry standard is usually 200 trades per hour). The account was frozen for 48 hours, and the order execution delay resulted in a spread loss of 8,700. SEC statistics indicate that during the year 2023, freeze events resulting from abnormal algorithmic trading made up 19.47 billion complaints during the year.
The source of funds problem accounts for 18%. If one deposit is over 100,000 (or the net account value exceeds 300.25 million without showing sufficient evidence of the origin of funds), a freeze of funds for 72 hours is triggered, and the compliance cost on the platform is increased by $3,500. According to Chainalysis’s report, the numbers of accounts frozen by cryptocurrency brokers due to unsuccessful traceability of on-chain transactions (e.g., the use of coin mixers) have increased by 37% in years, with an average unfreezing time of 29 days.
Technical security threats are no less significant. In 2023, a specific platform automatically froze and initiated a secondary verification when an unusual IP address for account login (switching 5 countries in 48 hours) was detected, with an average processing time of 6 hours. The same year witnessed the number of account freezes caused by API key leaks increase by 41%, with an average loss of $13,000 to users. According to CISA data, the 9-day average repair cycle for freezes caused by unpatched vulnerabilities (i.e., CVE-2023-1234) on finance platforms is much higher than the 3 days in all other sectors.
The law enforcement ratio is 7%. Court freeze orders (e.g., divorce action or debt controversies) freeze accounts for 120 days on average and incur legal fees ranging between 5,000 and 20,000. A 2024 California court precedent provides an example of a user’s brokeraccount being forced to be frozen and holdings sold for refusing to pay a debt of 180,000. The loss difference in asset disposal price was 23.21 billion, and even 13,000 of the user accounts were frozen. Only 34% of the accounts were successfully unfrozen.