The recent collapse of one of the world’s largest cryptocurrency exchanges (FTX) and the Optus and Medibank data hacks has shone a light on cybersecurity and the need to protect your assets.
Investors have enough to worry about like market volatility, inflation and interest rates without having to also worry about the physical security of their assets.
To make investing one step less stressful, there are three things you can do to ensure your shares are kept safe and secure.
Buy and sell your shares in your own name
Look for brokers offering you CHESS/HIN ownership. It sounds complicated but what it means is you are the owner of your shares.
In Australia, most shares are bought and sold (including legal ownership, the exchange of money and titles) on the ASX (Australian Stock Exchange). This is done via ASX system known as CHESS (Clearing House Electronic Subregister System).
Investors have the option of buying and selling shares through the CHESS sponsorship/HIN model or the custodian model.
CHESS users are allocated a unique Holder Identification Number (HIN), which is like a bank account number. Your HIN can be just for you. Alternatively, you can fit under a commingled or custodial model. This is where your investments are held in the same account with others.
If something did happen to your broker, then you can simply move your shares to another broker. You could also withdraw from your portfolio.
There are several advantages to owning your shares with your own HIN including tax and dividend advantages. Most importantly, the shares are owned by you and are always held in your name. You retain full legal and beneficial ownership of the shares.
In contrast, with the custodian model, your investments are pooled with others and managed by a third party.
You rely on their ability to accurately account for your investments. There is a risk that the shares may be sold or transferred without your knowledge. Even worse, you may lose ownership of the shares entirely.
Know your broker
Before you start buying and selling you should know a couple of things about your broker.
The broker you’re using should be based in Australia. It’s much harder to recover funds from companies based overseas. It’s much easier for them to shut up shop and disappear if they are not based in Australia.
Also, check to see if your financial services provider has a licence to operate.
Financial service providers in Australia must have a licence to be able to offer financial services to their clients. This is known as having an AFSL (Australian Financial Services Licence).
Licences are regulated by ASIC (Australian Securities and Investments Commission). You can check to see if your broker or financial services provider is licensed here.
Registered businesses have regulatory and legal obligations they must adhere to obtain and keep their licence. There can be heavy fines (and possible jail terms) for those that break the law and operate outside of their AFSL.
Activate extra security features
Most financial services providers these days offer something known as two-factor authentication. What that means is you have to go through at least two steps to access your account or make a withdrawal.
This could mean you have an account login and password. Once that is accessed, you will then be prompted to enter another password that is sent to you via SMS or email.
It was designed to ensure that you are the only person that can access your account. The great thing about two-factor authentication is that even though someone might know your password, they’ll still need to access your SMS or email to tamper with your account.
Two-factor authentication gives you peace of mind. It provides an extra layer of bank level security and encryption to your account.