The KYC lock due to document format error scam is a tactic used by some brokers to lock a trader’s account under the guise of incorrect document formats during the Know Your Customer (KYC) verification process. After a trader has submitted their identity verification documents, the broker claims that the documents are in an incorrect format or fail to meet certain unspecified requirements. This tactic is often employed after the trader has made a significant deposit or accumulated profits. The broker may then delay the withdrawal process or restrict access to the account, using the document format issue as a reason to hold the trader’s funds or prevent further trading.

This isn’t a genuine document issue—it’s a deliberate method of withholding funds and preventing withdrawals.

How the Scam Works

1. Trader Submits Documents for KYC Verification
A trader opens an account with a broker and completes the necessary KYC verification by submitting required documents such as:

• Proof of identity (passport, ID card, driver’s licence)
• Proof of address (utility bills, bank statements)

These documents are submitted as per the broker’s KYC requirements in order to comply with anti-money laundering (AML) regulations.

2. Broker Claims a Document Format Error
After submitting the documents, the trader is informed that:

“Your documents are not in an acceptable format.”
“Please resubmit your documents in JPG, PDF, or another specific format.”
“We cannot proceed with your account verification due to an issue with the document format.”

The broker claims that the format of the documents (such as the file type, resolution, or size) does not meet their requirements, which is often a vague or arbitrary claim with no clear explanation.

3. Broker Delays or Blocks Account Verification
Despite the trader’s attempts to resubmit the documents in the requested format, the broker may continue to:

• Delay processing the verification, asking for resubmissions or further documentation in a confusing and never-ending cycle
• Block the account, claiming that verification cannot be completed due to persistent document issues
• Provide no specific details about what exactly is wrong with the document, leaving the trader in a loop of uncertainty and frustration

In many cases, the trader is unable to withdraw funds or make any changes to their account while this issue remains unresolved.

4. Broker Continues to Withhold Funds or Prevent Withdrawals
As the verification process drags on, the trader is unable to access their funds or make withdrawals. Meanwhile, the broker may:

• Introduce new requirements or additional documentation requests
• Continue denying access to funds, citing ongoing verification issues
• Retain the trader’s deposits, claiming that until the issue is resolved, they cannot process the withdrawal

The trader’s funds are effectively locked, with no clear way to resolve the issue.

Real Case: KYC Lock Due to Format Issue After Large Deposit

A trader deposits $5,000 into a broker’s account and completes the KYC verification process by submitting a passport and a utility bill. However, after submitting the documents, the broker claims that:

“The format of your passport is not supported. Please resubmit the document in PDF format.”

The trader resubmits the documents multiple times in the requested format, but the broker continues to claim that the format is incorrect. As the trader tries to resolve the issue, they notice that they cannot withdraw their funds or access their account. Weeks later, the broker continues to request further documentation, and the trader is unable to retrieve their deposit.

Why This Scam Is So Dangerous

The KYC lock due to document format error scam is dangerous because:

• It prevents access to funds and blocks withdrawals, effectively holding the trader’s money hostage
• It causes unnecessary frustration as traders are forced to submit documents repeatedly without clear instructions on what is wrong with the submission
• It delays the trading process, leaving the trader unable to trade or withdraw profits
• It exploits regulatory requirements to manipulate traders into leaving funds in the account longer, benefiting the broker
• It undermines the trader’s trust in the broker, as the issue often cannot be resolved and the trader feels powerless to act

This tactic is a clear attempt by the broker to keep the trader’s funds by creating a confusing, never-ending verification process.

How to Detect the Scam

1. Vague or Arbitrary Claims of Document Format Issues
If the broker constantly claims that the documents are in the incorrect format without providing specific guidelines, or if they ask for documents to be resubmitted multiple times, this is a red flag. Legitimate brokers will:

• Clearly specify the required document formats (e.g., PDF, JPG, etc.) and any size restrictions
• Provide specific feedback on why the document is rejected (e.g., blurry image, incorrect resolution)

If the broker provides no clear explanation and keeps asking for new formats or documents, they are likely using this as a tactic to delay or block your withdrawals.

2. Inability to Resolve the Issue Despite Multiple Attempts
If the broker’s support team:

• Fails to resolve the issue despite several attempts to follow their instructions
• Requests additional documents or information without ever providing a definitive solution
• Provides unclear or conflicting answers, claiming that the documents were rejected due to format errors but not specifying why

…it is a strong indication of manipulation, especially if the trader has already complied with all the broker’s instructions.

3. Complaints from Other Traders About Similar Issues
Search online for complaints or reviews from other traders. If there are multiple reports of KYC document issues and delayed withdrawals, this is a warning sign that the broker is engaging in unethical practices.

4. Broker’s Terms and Conditions are Vague
Check the broker’s terms and conditions carefully for any mention of document format requirements. If the broker does not clearly outline the acceptable formats or documentation process, or if their policies are vague or constantly changing, this could be an attempt to manipulate the process in the broker’s favour.

How to Protect Yourself

1. Choose Brokers with Transparent KYC and Verification Processes
Select brokers that are regulated and provide clear, transparent KYC policies. Reputable brokers will:

• Clearly outline what documents are required for KYC
• Specify acceptable formats (e.g., PDF, JPG)
• Be responsive and helpful when a trader is having issues with document submissions

2. Always Review Broker Terms and Conditions Before Depositing
Ensure that the broker’s terms and conditions clearly outline all document verification requirements. If the broker’s terms seem unclear, avoid depositing large sums until you understand their policies.

3. Document All Communication with the Broker
If you are having trouble with the verification process, keep a record of all communication with the broker. This includes:

• Emails and support tickets
• Screenshots of any rejected documents and the reasons given
• Copies of all documents submitted

Having clear documentation will help you escalate the issue if necessary and provide evidence if you need to involve regulators.

4. Use Regulated Brokers with a Proven Track Record
Choose brokers that are regulated by respected financial authorities, such as the FCA, ASIC, or CySEC. Regulated brokers are required to follow strict procedures and provide transparent verification policies, making it harder for them to engage in manipulative practices.

5. Withdraw Funds Regularly
To avoid having your funds tied up in a broker’s account, withdraw profits regularly and keep a smaller balance in your trading account. This reduces the risk of being locked out of large sums due to KYC verification issues.

Regulatory Expectations

Under MiFID II, FCA, ASIC, and CySEC regulations, brokers must:

• Provide clear instructions for document submission and KYC verification
• Ensure transparent and efficient verification procedures to prevent delays or unnecessary obstacles for traders
• Honor withdrawal requests promptly, provided the trader has completed the required verification
• Allow traders to resolve verification issues within a reasonable timeframe and provide clear guidelines on document format requirements

Failure to comply with these regulations can lead to sanctions, fines, and potential loss of license for the broker.

Conclusion: If Your KYC is Blocked Due to Document Format Errors, Be Cautious

The KYC lock due to document format error scam is a manipulative tactic used by brokers to delay withdrawals and keep traders’ funds by forcing them into a never-ending loop of document resubmission. If the broker constantly claims format issues without providing clear explanations or solutions, it’s a red flag that they may be trying to prevent you from accessing your funds.

To protect yourself, always choose regulated brokers, understand their KYC processes, and withdraw your funds regularly to avoid this type of issue. If you encounter persistent problems, escalate the issue to a regulatory authority.

To learn more about how to trade safely and avoid broker scams, enrol in our Trading Courses. We’ll teach you how to navigate complex KYC procedures and ensure that your funds are secure.