Forex Brokers in the UK

Chris Lee

The UK has been the preferred home of many an FX brokerage for years now, on account of its laws governing the activity and the presence of the FCA, the Financial Conduct Authority, which acts as a regulator and licensing authority for the FX operators falling under its jurisdiction. Though far from being non-controversial, the FCA has thus far proved to be a very reasonable regulatory avenue for operators peddling online financial services, especially because – on a theoretical level at least – it grants licensed entities the right to legally offer their services all through the EEA (European Economic Area). Exactly how Brexit will affect the FCA’s reach in this regard, remains to be seen.

Setting up shop in the UK is therefore a matter of FCA-compliance. Obviously, being the international financial hub that it is, London is attractive for several other reasons too. It is presumably much easier to find proper, qualified personnel there, to run the operation, for one thing, and there are probably other advantages as well.

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    What exactly does the FCA do though and what sorts of powers does it wield?

    While in some cases, regulatory authorities touted by various brokers as their license providers, only perform a nominal activity, in the case of the FCA, nothing could be further from the truth. In fact, the powers wielded by the Financial Conduct Authority are nothing short of impressive.

    The FCA has for instance the authority to oversee all activity linked to the marketing of various financial products. It can also place requirements on financial products and it can set minimum standards all industry participants have to observe.

    Furthermore, the FCA can indeed investigate organizations, companies as well as individuals. It can also instruct operators to discontinue/cease all promotional activity concerning a certain product or product class. On top of all that, the FCA can also outright ban a financial product, temporarily or for good.

    Starting with April 1, 2014, the FCA has become the regulator of the consumer credit industry as well.

    The predecessor of the FCA was the FSA (the Financial Services Authority) which was abolished by royal assent on April 1, 2013, when the Financial Services Act of 2012 came into effect.

    Through its brief existence, the FCA received what one may consider more than its fair share of criticism. Various branches/verticals of the UK’s financial industry saw it fit at one time or another, to strike out at the FCA, mostly for reasons having to do with lack of concern and inadequate response in regards to various scandals.

    Why do you – the retail trader – need UK regulation?

    The FCA is the official body whose job it is to make certain that Forex brokers peddling services to the UK public comply with the laws and that they fulfill a set of requirements, compiled with customer protection in mind.

    Those looking to receive an operating license from the FCA, have to fulfill certain capital resource requirements. Though massive and highly liquid, the world of Forex trading is not by default insulated from unexpected and unpredictable events that may turn the tables on brokers for good. A prime example in this regard would be the 2014 decision of the Swiss National Bank to abandon the EUR peg, which ended up sending the CHF soaring, wrecking the finances of operators such as Alpari UK, that plunged into insolvency.

    Additional capital requirements are rounded out by strict monitoring requirements which are meant to make sure that a licensed brokerage can indeed weather an unexpected shock such as the above mentioned one, without going down and taking its traders’ monies with it.