Financial institutions are using a reporting function designed to catch money launderers and fraudsters as a source of free due diligence, the chief executive of a City trading firm has argued.

Salam Alaswad, the chief executive and founder of CFD and forex-focused Citypoint Trading, said the explosion in the number of Suspicious Activity Reports (SARs) showed banks and wealth managers were using the mechanism to wash their hands of potential problems, as their regulatory burden increased.

SARs are filed with the National Crime Agency (NCA) and are used by firms to report suspected money laundering and terrorism financi...