How To Protect Your Capital By Investing Your Money With FCA Forex Brokers
FCA is a self-regulatory organization of the UK that monitors the numerous activities and conduct of all types of financial organizations in conjunction with the Prudential Regulation Authority of the UK. FCA (Financial Conduct Authority) is a successor to the FSA (Financial Services Authority) and was introduced by the UK Government by abolishing the regulatory oversight and powers of the FSA in 2013. After the banking crisis in 2008, the UK Government decided to split up the powers of the FSA between two different entities. The Government entrusted the Bank of England with the duties to create stability in the financial markets through macro and microeconomic regulation, while the FCA was assigned duties to oversee the conduct of financial institutions for a transparent and ethical financial marketplace for all investors.
FCA has managed to eradicate a wide variety of financial crimes and frauds and has quickly attained the respect of investors from all over the world due to the regulatory organization’s commitment towards investor security and transparency of financial dealings. FCA is responsible for stringent regulatory protocols that have forced Forex brokers as well as market participants to adhere to strict guidelines to reduce instances of frauds that are still rampant in the industry. The FCA is also credited with protecting investors and their investments during the Swiss National Bank’s decision to unpeg the Swiss Franc from the Euro, a decision that caused widespread catastrophes for major FX brokers. The 2015 Swiss decision and the subsequent market volatility saw numerous brokers going bankrupt without compensating clients in a sufficient manner. However, FCA regulated brokers that were affected by the whole fiasco were able to pay off their customers under the FSCS insurance scheme, which covers investors for their investments up to £50,000.
What Is FSCS?
FSCS stands for Financial Services Compensation Scheme, which protects every investor under the FCA regulatory guidelines. FCA regulated brokers are stipulated by law to offer its clients complete protection against market eventualities and broker liquidation by safeguarding investments up to £50,000. Under this scheme, a trader that has invested money with an FCA Forex broker can claim insurance or file claims for up to £50,000 in the case of broker insolvency. However, such a compensation scheme is only available if a broker is unable to repay its clients through credible means as a result of broker liquidation or if its assets are frozen.
Is FCA A Trusted & Reliable Regulatory Authority?
FCA had faced a few criticisms in the recent past, but ever since the Government of UK started entrusting more powers with the organization, FCA has been acting in the best interests of the general public. FCA is indeed one of the most preferred regulatory agencies in the world, and traders trust the authority for its transparent guidelines that are oriented towards the investor, rather than the broker.
FCA requires every Forex broker to hold at least £1 million in operating capital to provide FX brokerage services in the UK. Although the operating capital is significantly smaller than the NFA regulatory requirements, FCA compensates through other regulatory frameworks that guarantee safety of client funds. It is also relatively harder for brokers to receive an FCA license when compared to other regulatory organizations such as CySEC and ASIC. Overall, FCA is considered to be a highly trusted and reliable regulatory authority for Forex trading.
More Forex Brokers By Regulation Authority
How Does The FCA Operate?
FCA operates independently, and the operation costs are raised through membership fees from member firms. Therefore, FCA does not use taxpayer money to fund its operations, which provides it complete autonomy. FCA regulated brokers have to undergo a rigorous regulatory procedure to achieve a valid FCA license, which not only helps companies to operate in the UK, but also provides the necessary licenses to cater to investors in the entire European Union through the EEA license.
Consequently, brokers regulated elsewhere in Europe can also provide financial services in the UK under the EEA agreement. Therefore, unlike NFA regulation, an FCA license is not compulsory for Forex brokers to operate in the UK, as they can be situated anywhere in mainland Europe and still entertain traders and investors from the UK through a valid European regulatory license.
Here are some of the nascent features of FCA Forex brokers:
- FCA regulated brokers keep client funds in segregated accounts and cannot access any part of the money for the company’s operational expenditure.
- Forex brokers licensed under the FCA guidelines should offer protection for every client under the FSCS scheme.
- FCA Forex brokers should always conform to the strict regulatory protocols regarding marketing their services or advertising financial products. Deviation from the same will result in severe sanctions against the company including temporary or permanent bans.
- Client complaints should be resolved mutually, failing which; traders can utilize the financial ombudsman services for arbitration, or approach the court for a final resolution.
How Do I Determine The Authenticity Of An FCA Regulated Broker?
Brokers who are licensed by the FCA receive a unique license number that can be used to identify the company and search the FCA database for vital business data. FCA regulated FX brokers also prominently display their FCA license information on their website, along with all the advantages and benefits that traders receive under the FCA and FSCS regulatory framework. The FCA website also provides a detailed history and other valuable information on a regulated broker, which can help investors to make an educated decision.
FCA also provides information on all brokers that come under the EEA umbrella, thereby allowing traders to be informed about brokers that falsely claim to be regulated directly under the FCA regulation. FCA also provides weekly newsletters and periodic updates about member firms and consistently updates their member database to warn investors about potential scams and frauds.
How Hard Is It To Find An FCA Regulated Broker?
It is extremely easy to find an FCA regulated Forex broker, as it is relatively easy to set up a brokerage in the UK. Due to the relatively lower amount of operating capital and the ease of doing business in the UK, several brokers prefer the UK as their base of operations. In fact, FCA supports healthy competition among Forex brokers by facilitating a secure environment for brokers to offer the best services without making any compromises on the quality or the transparency of operations. Financial markets such as spread betting and binary options trading are also made legal in the UK, which comes directly under the FCA regulation. Spread betting also enjoys a tax-free status in the UK, which has enabled several Forex trading and spread betting brokers to base their operations in the UK. Here is a list of all trusted and reliable FCA regulated Forex brokers in the industry: