Best FCA Regulated Forex Brokers 2020
FCA (Financial Conduct Authority) regulated Forex brokers in the U.K. are a natural choice for traders in both the U.K. and in other countries, thanks to their advantageous trader protections and investor-centric focus. The UK’s world-renowned financial sector is regulated and therefore designed to ensure a safe, innovative Forex and CFD trading experience is available to traders. This advantageous structure delivers access to insured accounts, complaint mechanisms, strict marketing rules, and some unique products that are only available to clients of UK-regulated forex and CFD brokers:
- The FCA’s Financial Services Compensation Scheme (FSCS) covers investors for up to £85,000 in the event of a broker being liquidated.
- Tax free spread betting and other attractive financial instruments are permitted by the FCA.
- With freedom comes responsibility, and the FCA is extremely diligent when it comes to compliance and investigating noncompliant brokerages.
- The FCA’s willingness to fine and suspend brokers which violate their clients’ best interests helps promote a safe, innovative financial environment
- where traders can take risks on the market and not on their brokerages.
FCA, ASIC, AMF, FSCA
What to Consider Before Choosing an FCA Regulated Broker
Forex and CFD brokers aren’t always known for automatically acting in clients’ best interests, especially when many brokers generate profit from client losses. Accordingly, the FCA’s strict regulations and investor protection mechanisms demand above-board dealings between clients and brokers, supporting a better environment for investors to thrive. This includes segregated accounts, differing capitalization requirements depending on execution models, and compensation schemes to ensure a better trader experience.
The Importance of Regulation
Financial industry regulations always seek to strike a balance between innovation, risk management, and client protections, and UK’s FCA is no different. The 2008 financial crisis highlighted the dangers of a poorly regulated market, and the years that followed have seen a greater focus on client protection. The UK financial markets have traditionally been leaders in this regard, with the FCA setting the standard for both trading freedom and client protection.
About The FCA: Its Origins and Purpose in the 21st Century
The FCA is a relatively new body, having launched its operations in 2013, but its predecessor (the FSA) had been the UK’s main financial regulator for decades. While the Bank of England handles larger-scale policy, the FCA is responsible for monitoring the brokerage sector. Accordingly, Forex and CFD transactions will all fall under this organization’s authority with an FCA-licensed and regulated broker.
The recent UK exit from the European Union was anticipated in advance by the FCA, which has announced that it intends to maintain close working relationships with European financial regulators. This will ensure that standards and procedures in the UK and EU remain aligned, especially for non-UK investors seeking to take advantage of the FCA’s generous protections and strict oversight.
Since the Brexit transition period does not expire until the end of 2020, FCA regulated Forex brokers based in the UK and its overseas territories will continue to provide financial services aligned with E.U. regulations until the end of 2020 and most probably also going forward well beyond that date.
Questions Every Trader Should Ask Before Choosing a Forex Broker
Choosing a brokerage that is both cost-effective and trustworthy is essential - especially for investors seeking to trade forex. As with every business transaction, a little due diligence at the outset goes a long way.
Here are some questions that every customer should ask before opening an account.
- Is the broker licensed and registered with a financial regulator? If so, which one?
- Does the broker have established relationships with well-known banks and other institutions?
- Are the broker’s spreads competitive when compared with the industry average?
- What range of financial instruments and trading strategies does the broker permit?
- How long has the broker been in business? Have they ever had liquidity issues that resulted in their clients experiencing late or refused withdrawals?
The answers to these questions should give customers a fair idea about the type of broker they are dealing with and how likely they are to have a positive experience dealing with them.
No financial services company is perfect, and even the best occasionally errs or make mistakes and find themselves facing unresolved issues. Accordingly, there may be times when clients land in disputes with their brokers. That’s where client protection becomes extremely important, and the FCA has developed several excellent mechanisms to help ensure that brokers satisfy strict demands while protecting investor interests.
FCA regulated forex brokers offer a variety of protections, benefits and other perks in comparison with brokers from other regions.
The Advantages of Choosing an FCA Regulated Forex/CFD Broker
- FSCS (Financial Services Compensation Scheme) - this offers protection covering up to £85,000 of capital deposits per person per broker in the event of broker liquidation. If the broker went insolvent before 1st April 2019, protection is extended to £50,000.
- Regulation - the FCA is empowered by the UK government to register, monitor and investigate brokerages that fall under its jurisdiction.
- Reputation - FCA brokerages are well-monitored and operate within a system that rewards innovation and punishes dishonesty. With over £200 million in fines typically issued in a given year, this regulator certainly means business. Brokers found to have breached its code of conduct and regulations may also be suspended and have their products banned.
- Infrastructure - the FCA has an extensive network of staff and financial monitoring technologies at its disposal. It works closely with the UK financial ombudsman service to resolve disputes.
- Tax-free Spread-Betting (for UK / Irish resident clients) - whereas EU regulators often frown on spread-betting, the FCA allows it - provided that the brokerage deals transparently with clients. The tax-free spread betting option only applies to clients resident in the UK and Ireland.
- Choice of Brokers - as a major financial center, the United Kingdom is home to more than 91 FCA regulated forex and CFD trading firms. This choice of brokers ensures tight, competitive spreads and reasonable brokerage fees.
The Disadvantages of Choosing an FCA Regulated Forex/CFD Broker
- Limited Leverage - the FCA once allowed almost unlimited leverage, but as of mid-2019 leverage was reduced to a maximum of 30:1 on Forex currency pairs. This may disappoint some traders, but it is certainly in line with global best practices. Professionals may access higher leverage if they are able to demonstrate their expertise and experience. Still, opting for that “professional” classification route does diminish certain investor protections.
- Uncertainty Over Brexit – while the FCA has repeatedly expressed its intention to work actively with European regulators after Brexit is complete, it depends on the outcome of negotiations following the end of the year 2020. However, UK regulators are unlikely to limit the international customer base of FCA-regulated forex brokers and it is possible that the FCA may relax certain rules like leverage caps to make the UK financial sector even more competitive.
- Legal Jurisdiction - while the FCA’s client protection mechanism is extremely generous and efficient, it is capped at a certain amount. Should your losses from a brokerage liquidation exceed £85,000, you may need to consider legal action to recover your funds. However unlikely this scenario may be, it is certainly possible and may be of concern to traders who plan to invest large amounts in forex and CFD trading.
- Minor Grey Area Over Spot Forex Contracts - at present, spot forex contracts do not fall under the licensed activities of the FCA. For traders who prefer this type of instrument, the risk of trading through an FCA broker is that the spot forex trade will be technically unregulated and therefore not subject to the authority’s control and oversight. In any case, most FCA regulated Forex brokers offer Forex trading as spread betting or CFDs which are classified differently.
How the FCA Protects Client Interests
As outlined above, the FCA has existed in its current form for several years - and for many decades before that as the FSA. The UK government’s decision to split the FCA from its other financial regulatory bodies was taken in the hope that a specialized regulator for financial brokerages would deliver a better-regulated market.
So far, the FCA is widely seen as having lived up to this expectation and in fact exceeded it in some areas.
The FCA carries out several important functions:
- Licensing and registering financial services companies
- Ensuring that brokerages comply with FCA regulations and investigating complaints from clients
- Censuring financial companies that are found to have violated the FCA’s rules and regulations.
- Engaging with the government, banking sector, financial services client organizations to ensure a functional and efficient financial sector.
Investor safety is crucial in any developed financial market, and the FCA oversees one of the world’s biggest. Britain’s strategic location and history of success in trade and finance has allowed it to become one of the top financial destinations on earth.
UK based brokers have working hours in common with Asia, Europe, Australia, Africa, and North and South America. This allows the more than 50,000 FCA registered financial services companies to serve clients across the globe.
As outlined above, FCA brokers are subject to the regulator’s FSCS (Financial Services Compensation Scheme) which guarantees up to £85,000 in coverage for client funds in the event a broker is liquidated. Brokers found to be in violation of the FCA regulations face several forms of repercussions, including warning notices, fines, suspension of trading license, and product bans - depending on the severity of the violation.
Criteria & Conditions FCA-Regulated Forex/CFD Brokers Must Satisfy
FCA regulated forex brokers must comply with the following before they are authorized to sell their services to the public. All brokers are responsible for meeting these requirements and may lose their license if they fail to do so.
- The broker must hold the minimum amount of capital as per their FCA license equivalent to £125,000 for straight-through processing (STP) models and £730,000 for market-makers
- The broker must keep client funds separate from its operating expenses at all times
- Reporting - the broker has to report their daily capital balance and submit monthly and quarterly financial documents to the FCA
- The broker must manage their business in line with best practices and demonstrate this to the FCA on request
- The broker must disclose the risk involved with each trading instrument to its clients and always act in the client’s best interest
- The broker must not offer any services that violate FCA regulations, including highly leveraged trades.
If the FCA suspects a brokerage of violating its regulations, it has the legal authority to investigate and impose fines on the broker - or revoke their license altogether.
The FCA is featured in the financial news on a regular basis due to the actions it takes against non-compliant brokers and the information it shares with the public for the sake of investor and consumer safety.
A recent example includes a broker added to the FCA’s scam list for “cloning” an FCA-authorized firm. 4fxroyal was caught imitating Royal Forex and copying some of the FCA registration details to defraud customers, landing the scam company in the FCA’s crosshairs. Now listed as a scam firm on the FCA website, prospective traders should always make extra effort to conduct thorough due diligence before registering and capitalizing accounts.
If a client believes that a broker has misled them or is not dealing with them in an ethical manner, they are welcome to report the incident to the FCA. The regulator is efficient and diligent at investigating potential violations by the companies it oversees.
The Bottom Line
Choosing an FCA regulated broker makes a lot of sense for traders who value reliability, transparency and the peace of mind that comes with a well-regulated financial sector.
The FCA’s track record as a fair and efficient regulator means that the brokers which it regulates are likely to provide excellent service and behave ethically. Should they fail to live up to this standard, the FCA is on hand to assist.
While an FCA regulated forex broker is ideal for the majority of traders, the recent limitations on leverage caps mean that traders who are seriously engaged in highly leveraged trading may not benefit as much from using an FCA broker. Still, leverage offered is still more than adequate to support aggressive money management strategies. With ample investor protections, FSCS insurance, and an investor-centric approach to oversight, the FCA-regulated and authorized forex and CFD brokers present many valuable advantages for traders based both within and outside the U.K.