The FCA (Financial Conduct Authority) is responsible for the regulation of financial services in the UK. It was formerly known as the FSA (Financial Service Authority) but changed its name in 2013. Along with its reincarnation came a new regulatory body known as the Prudential Regulatory Authority, which is wholly owned by the Bank of England. It has responsibility for the prudential regulation and supervision of banks, building societies, credit unions, major investment firms, and insurers. It is also responsible for the setting of standards and supervision of financial institutions on an individual firm level.
What is the FCA?
The FCA is the UK’s regulatory body that has responsibility for regulating financial firms that provide services to consumers, with the aim of maintaining the integrity of financial markets in the UK. Its main focus is on regulating the conduct of retail and wholesale financial services companies. It is a structured company that is limited by guarantee.
The FCA is responsible for overseeing the operations of more than 50,000 firms. It is mandated to step in when FCA-regulated brokers treat their customers unfairly, or behave in ways that are a risk to the integrity of the market. It not only regulates, but also investigates, complaints, and enforces laws in regard to broker infractions. There are two parts of its regulation that are designed to increase consumer protection:
- An FCA Forex broker has to place any funds belonging to clients in an account that is separate from the company accounts used to finance its day-to-day operations. This is known as account segregation.
- The FCA operates the Financial Services Compensation Scheme. This scheme was set up to provide a full refund of trading capital up to £30,000, along with 90% protection for account capital up to £20,000, should an FCA-regulated broker be declared bankrupt.
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The FCA has also been responsible for issuing certain guidelines to ensure that brokers comply with the best industry practices.
The FCA guidelines for regulated Forex brokers
Forex brokers regulated by the FCA are expected to shop around for the best possible deal when acting as the counterparty on behalf of its clients. If a broker is found to be not following this rule there could be a substantial fine – as in the case of FXCM, who were fined for withholding profits accruable from favorable slippage, while passing along the full cost of unfavourable slippage to clients. The FCA has recently upped its game with regard to sequestration of clients’ funds. FCA Forex brokers are required to provide periodic reports that contain certain data such as capitalisation and value of segregated client funds. If a regulated broker fails to provide such information, is found guilty of withholding it, or there is a lack of transparency, hefty penalties will be imposed.
All of these measures, and several more, help to protect clients of Forex brokers in the event that anything goes wrong with the broker. Choosing to pick an FCA-regulated broker will therefore be far less risky in the long run.
Is it easy to find out whether a Forex broker is regulated by the FCA?
Much like many other regulatory bodies, the FCA maintains a register that is accessible to the general public. It is called the Financial Services Register, and can be found on the Authority’s own website. The register contains a record of all firms, individuals and other entities that are, or have been, regulated by the FCA. The firms that are registered are able to conduct regulated activities or provide regulated products, which is the category that Forex brokers fall into.
It’s relatively easy to find out the status of an FCA-regulated Forex broker; but you may encounter some terms you are unfamiliar with; so let’s give a brief explanation to help you find out the kind of broker you are dealing with, and whether you are protected if things go wrong.
Appointed representative – This refers to a firm that may be acting on behalf of an authorised firm that has to account for its activities.
Appointed representative former – This refers to a firm that is no longer authorised to carry out the type of business regulated by the FCA.
Authorised – This type of firm is authorised by the FCA to carry out regulated activities in the Forex and other markets.
Authorised applied to cancel – This firm has applied to cancel its previously issued authorisation.
Authorised in liquidation – This firm is in liquidation and intends to stop doing business in the future, or may already have stopped.
Authorised suspended – This firm will still be authorised by the FCA, but has had its licence suspended for a certain period of time.
No longer authorized – This firm is no longer authorised to carry out certain types of FCA-regulated business.
There is also another term you might find in the registry: A cloned firm is when fraudsters try to use the details of an authorised firm to try to convince people they are the genuine article. The FCA are kind enough to help you protect yourself by sharing some basic tips, and we’d advise all of you to spend a few minutes reading their advice.
The benefits the FCA provides for the consumer
Whether you’re looking for an FCA Forex broker or any other kind of financial service, the FCA is there to oversee the functioning of the company and how it interacts with you, the consumer. Its main aim is to protect you against all types of fraud and financial crime. It serves to guarantee that market integrity is kept intact. One of the ways it does this is by auditing all registered organisations; not just the financial side, but the company’s conduct as well.
The FCA also serves to promote healthy competition by allowing companies to attract clients in the interest of fair and honest services. Basically, the FCA is a financial watchdog that aims for consumers to be able to benefit from the healthy competition that is brought about by an open and transparent market.
