Why does my bank suddenly need to know where my money comes from?

Question

Today, I went to my brokerage account at Wells Fargo and the page said that online trading was suspended. I called them and the rep. said, "We need to know where your money came from."

This is an odd question. I've been with the bank for 15 years and the money in the accounts has been very slowly accumulated via direct-deposit paychecks over that time. In fact, in order for me to determine where my funds came from, I have to look at their records.

After I explained this, they said the brokerage account would be back online tomorrow. But I'm left confused as to why in the world they need to do this to their customers. Any ideas?

Answer 1

Banks have a financial, and regulational duty called "Know your customer", established to avoid a number of historical problems occurring again, such as money laundering, terrorism financing, fraud, etc.

Thanks to the scale, and scope of the problem (millions of customers, billions of transactions a day), the way they're handling this usually involves fuzzy logics matching, looking for irregular patterns, problem escalation, and other warning signs. When exceeding some pre-set limit, these signal clues are then filtered, and passed on for human inspection.

Needless to say, these algorithms are not perfect, although, thanks to financial pressure, they are improving.

In order to understand why your trading account has been suspended, it's useful to look at the incentives: false positives -suspending your trade, and assuming you guilty until proven otherwise- could cost them merely your LTV (lifetime value of customer -how much your business brings in as profit); while false negatives -not catching you while engaging in activities listed above- might cost them multi-month investigations, penalties, and court.

Ultimately, this isn't against you.

I've been with the bank for 15 years and the money in the accounts has been very slowly accumulated via direct-deposit paychecks over that time.

From this I gather the most likely explanation, is that you've hit somekind of account threshold, that the average credit-happy customers usually do not exceed, which triggered a routine checkup.

How do you deal with it? Practice puppetry!

There is only one way to survive angry customers emotionally: you have to realize that they’re not angry at you; they’re angry at your business, and you just happen to be a convenient representative of that business.

And since they’re treating you like a puppet, an iconic stand-in for the real business, you need to treat yourself as a puppet, too.

Pretend you’re a puppeteer. The customer is yelling at the puppet. They’re not yelling at you. They’re angry with the puppet.

Your job is to figure out, “gosh, what can I make the puppet say that will make this person a happy customer?”

In an investigation case, go with boredom: The puppet doesn't care, have no feelings, and is eternally patient. Figure out what are the most likely words that will have the matter "mentally resolved" from the investigator's point of view, tell them what they have to hear, and you'll have case closed in no time.

Hope this helps.

Answer 2

Most likely this is connected with new banking regulations related to the Patriot Act, which require banks to be much more inquisitive about their customers and their money. The requirements are mostly about new accounts, but there may be some provisions to backfill this information for existing accounts.

Answer 3

Banks and credit unions are constantly required to improve their detection methods for suspicious transactions. It's not just big transactions anymore, it's scattered little ones, etc.

Our credit union had to buy software that runs through transactions sniffing for suspicious patterns. More regulations and more costs that ultimately get passed on to customers in one way or another.

Some of your transactions probably tripped a wire where there was none before.

Answer 4

Bank runs very complex software to detect suspicious activity - terrorism financing, money laundering, etc. How would a program know that some person's activity is suspicious? It uses a set of rules. That set might be imperfect (that likely was not intended) - there might be some rule that triggers a warning on your account dominating the fact you've been with them for 15 years. So it's highly likely that an imperfect program triggered a warning on your account and the bank employer didn't dismiss it.

Answer 5

Let me just add that in addition to regulations requiring banks to be on the lookout for money laundering and terrorist financing, there are also regulations supposedly intended to keep banks from exploiting their customers. I opened an investment account once and they asked me a bunch of questions about why I was opening this account and my financial goals and how much money I normally kept in my checking account, etc. I told them that I wasn't looking for financial advice, I had my own plan thank you, and I just wanted to open this account. The bank person replied that they were required by law to ask questions like these to prove to the government that they weren't pressuring me to buy bank products that would be bad for me.

In a similar vein, I owned a small business for a few years (never made any money, I gave up on it), and when I started it I got a packet from the state on state business laws, one of which was -- not the exact words, it was many years ago -- that it was illegal to "sell a customer a product that will not benefit the customer". Was I really expected to quiz every customer about why they wanted to buy my product and then I decide whether it will do them any good or not? That seemed insane. Why is it the seller's job to tell the customer what he should buy? But that was state law.