FCA Regulated Brokers
The Financial Conduct Authority (FCA) is responsible for regulating financial services in the UK, from banks to day trading brokers. This page will cover what a licence from the FCA means, as well as the trading benefits of registering with an FCA regulated broker. Along the way, we will also cover the group’s history, specific rules and regulations, plus key terms and current complaints.
What is the FCA?
Operating independently from the UK Government, the FCA is one of the most prestigious regulatory bodies in the world. In fact, the regulations of the FCA help govern over 56,000 financial services firms.
As their official website states, key objectives include:
- The supervision and enhancement of financial markets in the UK
- Encouraging healthy competition within financial services in the interest of consumers
- Using enforcement and investigation to ensure compliance with regulations aimed at treating customers fairly
These all fall under the overarching objective to ensure the functionality of financial markets within the UK. But while the definition and meanings may be simple, preventing market abuse and implementing new regulations can prove challenging, as will be shown below.
Note the agency has the authorisation to regulate both retail and wholesale financial services firms.
The FCA is a limited company by guarantee. The majority of its funding comes from charging fees to members of the finance industry. The amount regulated entities pay depends on the activities undertaken, the scale of those activities and the costs incurred by the FCA.
Note that the FCA must also keep in line with EU MiFID II regulations and guidelines. This means watch lists and regulated markets can change with notifications of new deadlines and outcomes from the EU framework. This can affect everything from short positions to commodity position limits.
See ESMA’s website for a summary of MiFID II regulations.
The FCA is a relatively new body that came to life on April 1st, 2013. Its predecessor was the Financial Services Authority (FSA). But when the Financial Services Act came into force, the FSA was abolished and a new regulatory structure was created, including the FCA.
There was then a merging of FCA/FSA legislation and regulations. Although the structure was to change, the approach to consumers and competition remained similar. In addition, the handbook, conduct rules and objectives all retained a likeness.
However, despite similarities, the Financial Services act brought in some significant changes to the scope of the FCA. This was to ensure the financial sector could better manage risk following the 2008 financial crisis.
A quick search online and you will see the FCA has made the news in recent years for several reasons. Firstly, because the body is particularly active and tougher than many similar regulatory agencies in Europe. In fact, the FCA has given out a number of substantial fines to forex brokers for price manipulations and acting without the interests of consumers in mind.
The regulatory agency has also made the news for attempting to implement checks and balances on binary options and cryptocurrency, such as Bitcoin. It has done this using 2017 and 2018 regulations, official warning lists and more.
Note in 2018 FCA headquarters were to move from Canary Wharf to Stratford, London. Having said that, they also have offices in locations such as Edinburgh, Scotland.
Responsibilities & Powers
So what powers and responsibilities do the FCA have? With ensuring the functionality of financial markets being such a broad objective, the body has extensive powers and duties.
Introducing forex regulations, principles for algorithmic trading businesses and blockchain companies could all fall under their remit. On top of that, ensuring data protection, removing financial promotions and protecting vulnerable customers all form part of the body’s role.
Specific examples of the latest and upcoming FCA regulations also include:
- An ability to ban products for up to a year as it considers a lifetime ban
- Implementing maximum leverage limits and ensuring appropriate risk warnings
- Using the Financial Services Compensation Scheme to afford retail clients up to £30,000 if an FCA regulated forex broker goes bankrupt. Customers may also get 90% of the next £20,000. However, it cannot promise compensation on more than £50,000, which is still greater than EU bodies.
The FCA has a range of measures it can take when a broker breaches compliance regulations. This can include warning notices and new reporting requirements, all the way up to hefty fines and the banning of products. Unsurprisingly, it is the latter measures that often hit regulated brokers where it hurts most. This is perhaps why the regulatory agency gave out a staggering £229,515,303 in fines during 2017.
The FCA also has more middle ground powers, such as the temporary suspension of trading accounts. A power they used when Plus500’s less than stringent documentation requirements failed to protect against customer losses and prevent money laundering.
Despite a whole host of sales, lending, accounts, data security and client money regulations, the FCA still faces criticism.
In June of 2013, the Parliamentary Commission for Banking Standards said “The interest rate swap scandal has cost small businesses dearly. Many had no concept of the instrument they were being pressured to buy. This applies to embedded swaps as much as standalone products. The response by the FSA and FCA has been inadequate. If, as they claim, the regulators do not have the power to deal with these abuses, then it is for the Government and Parliament to ensure that the regulators have the powers they need to enable restitution to be made for this egregious mis-selling”.
There have also been complaints about the choice of personnel at the top of the FCA. For example, there were numerous calls for the resignation of the chairman John Griffith-Jones as he was responsible for HBOS audit when chairman at KPMG during the 2007-2008 financial crisis.
In addition, many were unhappy about the choice of chief executive, Martin Wheatley. This is because of his role in the minibond fiasco in Hong Kong. In fact, there were no pre-appointment hearings for either of these placements, so people were unable to officially disapprove.
There is an issue with fees. Obtaining an FCA license is relatively expensive compared to the likes of CySEC. As a result, many brokers pursue a CySEC licence so they can save money and meet lower entry requirements. What does it mean for consumers? Unfortunately, this results in less choice for consumers who want the extensive protections the FCA promises.
Lastly, it has also been said that the website and statutory regulations do not go far enough to ensure transparency and fair advertising.
Despite the above, it’s worth noting the FCA has taken steps to address some of the issues above. For example, the regulatory body saw three new CEOs in the space of a year. It has also brought in new guidelines, listing rules and qualification requirements for brokers.
In addition, the regulatory body is making fewer exemptions and coming down hard on unauthorised firms. In fact, they publish public warnings and hold press releases to make consumers aware of fraudulent brokers and scams.
They have also sought to make it clear with what it stands for through its mission statement. At the same time, its employees are undertaking training to enforce effective banking and payment account rules, as well as transparency regulations.
So despite complaints on regulations, for the FCA to have achieved so much following the crisis of 2008 remains fairly impressive.
This page has given you an overview of FCA regulations and their meaning. One key point to take away is that the FCA is a benchmark in terms of regulations.
This is particularly the case when compared to other bodies, such as Cyprus’s CySEC. In fact, as one of the oldest and most reputable regulatory agencies, a huge number of brokers pursue an application for an FCA license.
Note you can connect with the FCA via their helpline or website if you have any complaints. Visit their website here.
Also, before you sign up with a new broker, check they are qualified and regulated by the FCA. You can do this by running their license number through the official FCA website.