Best FCA Regulated Brokers

Why Do Brokers Apply to be Regulated?

Reputable firms, those whose business model is based on delivering an attractive service to clients, have the option of applying to be authorised by a regulatory body. In the UK, the regulatory body overseeing the financial markets is the Financial Conduct Authority (FCA)

Investors and traders who use a broker regulated by the FCA can take a degree of comfort from the following features:

• Complaint procedure – the right to take complaints to the regulator if the broker doesn't adequately address your issues
• Cash deposit protection schemes – such as FSCS in the UK, which protect your funds
• Negative Balance Protection – not being able to lose more than your initial stake
• Segregation of client funds – if the broker goes bust, your money is safe because it's held in an independent account
• Risk warnings – brokers are required to offer information on the risks associated with trading
• Trading limits – the FCA limits leverage on retail accounts to 1:30

What the regulator demands of regulated brokers extends far beyond the items listed above. There are Order Execution Policies, Pillar 3 disclosures, Anti-Money Laundering rules, Privacy Policies and much, much more.

Brokers need to comply with the terms set out by the FCA and must also provide reports to prove compliance; doing so is very costly. The fact that a broker opts to be regulated indicates that it is a bona fide business with a long-term business plan and a desire to put in the effort to gain the rubber-stamp of the FCA

What Does Being Regulated by the FCA Mean?

The cover that extends to clients is only part of the equation. There is also a lot of compliance work that goes on behind the scenes at FCA regulated firms.

The application process itself is long-winded and costly. It usually takes more than six months to process an application and involves submitting an extensive amount of documentation. Items covered include the business's operations, the key staff involved and evidence that they have the skills and experience to run the business in line with the rules and regulations.

Brokers are also required to demonstrate they have enough spare cash on hand to make their business viable. That's cash tied up in a deposit account rather than being used as working capital to develop the business.

The carrot associated with being regulated is that the broker can attract more customers. The stick is that the regulator can take punitive action against brokers that don't comply with the rules; firms can be warned or even lose their licence. The FCA's website keeps a log of the actions it takes to police the financial markets.

If you're looking for a reliable broker, using one that is appropriately regulated is essential. Considering the time, effort, and expense brokers commit to become regulated, why risk your money with an unregulated organisation?

The even better news is that regulated brokers compete for business in many different ways. For example, some provide excellent research tools and offer low-cost trading and good all-round service. Trying the demo accounts of the below FCA regulated brokers will help you learn more about trading and what the brokers offer.

Final Thoughts

With so many good brokers going to the trouble of gaining FCA licenses, it's a surprise that individuals are still getting caught out by unreputable firms. A little bit of homework is all that it takes to ensure a firm is well regulated.

One final check that is recommended is to cross-reference a broker's registration with the FCA itself. The regulators own database is the ‘golden source' of information and it's worth utilising the search tool to make sure a broker is genuine.