Forex Brokers: Introducing the FCA
Why Regulation ?
Unlike stocks and commodities, forex trading has no central exchange or clearing house. The lack of transparency in the FX market has left it vulnerable to numerous instances of malpractice and manipulation.
The Financial Conduct Authority
In the United Kingdom, the Financial Conduct Authority, or FCA (formerly the FSA or Financial Services Authority) acts as a watchdog to ensure that brokers employ fair and ethical practices in their business operations. FCA-regulated forex brokers must adhere to a number of industry standards.
Of particular importance is the FCA requirement that firms keep client funds separate from company funds. These segregated deposits cannot be traded by the firm or used as company assets if the brokerage firm becomes insolvent. There are many other aspects of governance imposed on a brokerage regulated by the FCA, but this is quite possibly the most important as far as the average retail traders is concerned.
WARNING: If you deal with a brokerage firm that is not FCA regulated you may not be covered by the Financial Ombudsman Service (for complaint arbitration) or Financial Services Compensation Scheme (more on this next) if things go wrong.
The Financial Services Register
Before applying for a live account, signing ANYTHING or depositing ANY funds with ANY broker you should look them up on the FCA Financial Services Register where you will learn if the firm or individual you are using or planning to use is authorised or registered with the FCA. Other important information you can uncover includes:
- Contact details:
- Full Contact details including address, phone number and a named complaints handler.
- Basic Details:
- Their Companies house registration number, current status, effective date and more.
- Disciplinary and Regulatory action:
- Including any warnings, fines or disqualification notices issued against the firm
- Which regulatory body they are currently supervised by.
- Full details of each person within the firm who is authorised to conduct what is known as a “Controlled Function”.
- Covering all activities the firm is authorised to conduct such as holding client money, investment types (CFD’s Spread Betting etc) advising on investments as principal and/or agents etc.
- Passport out:
- Details of the services the firm is authorised to provide in other European Economic Area (EEC) territories.
- Trading/Brand Names:
- This will tell you if the firm you are looking up has any other trading names in the business – Worryingly, even Alpari UK has several alternative trading names out there, some of which may still be trading, all of which I would want to avoid !
If you are in any doubt as to whether a brokerage is FCA licensed and approved then you can simply look them up on the FCA Financial Services Register. Simply enter the name of the broker or individual you are interested in and search the register – You’ll be amazed what information is available to you.