Dan McCrum


Dan joined FT Alphaville in September 2013 after stints on Lex and as the FT's Investment Correspondent in New York. Send him ideas or call him up.
Plus500 appears to have a problem — and it goes beyond the application of anti-money laundering rules which have required the London-listed contract for difference broker to freeze more than half of UK customer accounts, until the identity of each client is verified.
On Monday, following a one-third drop in the share price, the Israel-based group put out an announcement which said, “currently c.50% of Plus500′s revenue is derived from Plus500UK”.
Consideration of the accounts for the UK regulated entity, Plus500UK Ltd, makes it hard to see the basis for that statement.
Small totals reported for UK turnover in the last two years also return us to a question asked in our first post on the company: where do Plus500′s customers come from?
The entity listed since 2013 on Aim, London’s junior market, is the Plus500 holding company run from Haifa, Israel, where senior management, computer systems and most staff are found. The Israel business is not licensed to conduct contract for difference trading, but it has three subsidiaries which are, in the UK, Cyprus, and Australia.
The UK entity was incorporated in 2009 and granted a licence by the Financial Conduct Authority in June 2010. The UK license can be “passported”, allowing it to operate in other European countries, but Plus500CY also secured a licence from the regulator in Nicosia, Cyprus, in October last year.
The small Australian business has been licensed since June 2012, and began offering CFD trading at the start of 2013, according to Plus500.
When the group published accounts for 2013, it said Plus500 focuses on 50 markets, and “the Group’s current core market is Europe where over 90% of its revenues are achieved, with the UK being its largest jurisdiction with 15% of its total revenues in 2013.”
It was possible to largely reconcile the revenue numbers with the accounts published by the subsidiaries. Group revenues were $115m. Plus500UK ltd reported turnover of £64m ($100m), and Plus500AU recorded turnover of A$3m ($3m), leaving about $12m to go through the holding company.
However, auditors for the UK entity changed last year. Baker Tilly, auditor for 2013 after acquiring Plus500 accountant RSM Tennon, resigned. PWC took over.
The first thing to note in the 2014 filing for Plus500UK is revenues for the previous year were restated downwards, from £64m to £13m ($20m).
UK revenues for the regulated entity were £24m ($40m) in 2014. Australian revenues were A$10m ($9m).
In the group accounts for the year, however, Plus500 reported trading income had doubled, to $229m. It is possible Cyprus now represents significant revenues for the group, but it was only licensed for a few months of 2014.
Three questions present themselves:
  • What happened to the £51m of UK revenues previously reported for 2013?
  • On what basis can Plus500 announce on Monday around half of revenue is derived from Plus500UK?
  • Where does the rest of its trading revenue come from?
The apparent disappearance of £51m in turnover suggests differences of opinion between the two sets of auditors about what constitutes revenue. The definition of turnover for Plus500UK changed between 2013 and 2014, from:
To:
Another possible area of disagreement might be the attribution of non-UK revenue to the UK entity. The distinction matters because investors in Plus500 may place a different value on business conducted in the UK, under FCA regulation, versus elsewhere.
Consider the internet traffic we looked at in our first post in this series, which appears to suggest significant numbers of visitors to Plus500.com arrive from China. Note also the value Plus500affiliates.com (a website whose ownership it is not possible to ascertain) places on referrals of Hong Kong customers: $350.
Plus500 has been on the “Alert List” of unlicensed entities published by the Hong Kong Securities and Futures Commission for four years:
Hopefully, the company can fill in the gaps for us here. We also checked with Plus500 that they are not operating in jurisdictions where the firm is not licensed, such as Hong Kong. At pixel, a spokesperson for the company had not responded to requests for comment.