If you live in the UK, you have a variety of options in regards to financial leveraged investments. Forex and CFD’s, as well as spread betting brokers, are regulated by the Financial Conduct Authority (FCA, previously know as the FSA).

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What does the FCA do?

What exactly does the FCA do when it comes to regulating the retail FX / CFD  industry?

  • Protecting Consumers: One of the main roles of the FCA is to protect consumers and ensure that consumers don’t become victims of scams or end being tied into unfair contracts.
  • Supervise Firms: The organisation plays a significant role in supervising the activities of regulated firms. With the FCA performing regular assessments of firms conduct, with the largest firms being continuously assessed over rolling two year periods.
  • Fines and Disciplinary Action: The FCA has the power to fine investment services firms which breach UK regulatory law, these fines can be substantial and are a powerful tool when disciplining and encouraging firms to operate within the law. In addition the FCA has the power to revoke a firms operating licence should the regulatory breaches be particularly severe or the FCA doesn’t feel the firm will implement changes to prevent future breaches.
  • Warnings: The FCA regularly releases warnings regarding the operation of unregulated firms. This helps protect consumers from doing business with unregulated firms and is an important part of consumer protection. You can find warnings regarding unregulated firms here.


What is the FCA? 

Prior to April 1st 2013 financial services regulation in the United Kingdom was handled by the Financial Services Authority (FSA). In the wake of the 2007-08 financial crisis the UK government decided to restructure financial regulation, ultimately leading to the abolishment of the Financial Services Authority. The Financial Services Authority (FSA) was replaced by two new organisations, the Financial Conduct Authority (FCA) and the Prudential Regulatory Authority (PRA) which is part of the Bank of England.

The Prudential Regulatory Authority is responsible for the prudential regulation and supervision of Banks, Building Societies, credit unions, insurers and other major investment firms. The Financial Conduct Authority has a different mandate and is primarily concerned with the regulation of firms which provide financial services. Any organisation that provides both banking and other financial services will be required to be regulated by both organisations.

Under the new regulatory arrangement the provision of retail FX services is something which is handled by the Financial Conduct Authority. The organisation is also responsible for the regulation of other trading products including CFD’s (Contracts for Difference) and Financial Spread betting. In addition to regulating the provision of the above trading products, the Financial Conduct Authority is responsible for regulating wide array of different of financial products.


FCA: The European Gold Standard?   

Many Forex traders see FCA regulation as the gold standard of European financial regulation and prefer if possible to only trade with firms regulated by Britain’s Financial Conduct Authority. Why is the FCA so popular with retail trader? It is partly due to the fact that British financial services regulation goes above and beyond the minimum standards set out by the EU’s Markets in Financial Instruments Directive (MiFID). For instance the FCA has more demanding capital requirements than the minimum demanded by MiFID, while a number of jurisdictions opt for the bare minimum required by the EU directive. Additionally the UK’s investor compensation scheme offer more protection than the minimum laid out in MiFID providing £50,000 of cover should a brokerage collapse financially. The FCA is also at the forefront when it comes to regulating new products with it being suggested that the FCA may become the first EU financial regulator to seriously scrutinize copy trading and require the social tradin platforms to be regulated, as they may constitute a form of portfolio management

While this can make it significantly more costly to operate from the jurisdiction, many firms see being regulated and based in the United Kingdom as a significant advantage when it comes to marketing their services to potential customers. There has been a trend in recent months for brokerages based in other EU jurisdictions to seek a FCA licence in addition to their current regulatory licensing from a MiFID regulatory body, with CySEC regulated eToro and Estonian regulated Admiral Markets both having recently acquired a full FCA licensing.

There are so many more brokers applying for a CySEC license that is essentially the same as the FCA one, and those who possess it can accept UK-based individuals, that we recommend the following – Best CySEC brokers.

FCA As Regulator of Currency Transfer Firms

We can’t ignore the fact the FCA is also responsible to regulate money transfer firms, mainly focusing on topics like segregated client accounts, and asset against debt ratio. The FCA in the case of money transfer companies must authorise the activity of a firm trading above GBP 3m per annum (while a company trading less than that needs to be registered, but not approved as a payment provider). Here is a list of companies authorised by the Financial Conduct Authority:

  • Authorised by the FCA
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World First Review
  • Authorised by the FCA
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Currency Solutions Review
  • Authorised by the FCA
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Moneycorp Review
  • Authorised by the FCA
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OFX Review
  • Authorised by the FCA
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Currencies Direct Review
  • Authorised by the FCA
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FairFX Review
Wise logo PNG
  • Authorised by the FCA
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Wise Review
FC Exchange
  • Authorised by the FCA
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FC Exchange Review

Financial Spread Betting Regulation & Taxation

In the UK profits made from financial spread betting are not taxed due to the fact the instrument is considered a form of gambling despite being a regulated industry. The profits of Gambling have been tax free since 2001, though those who rely on profits from financial spread betting as their sole source of income are required to pay tax on their profits. This has made financial spread betting a popular instrument among retail traders who want to speculate on a wide range of financial markets, with traders using other derivative instruments such as CFD’s being required to pay capital gains tax on their profits. There is however signs that the current tax situation in regards to financial spread betting may change.

Recently during the second day of debate on the Financial Services Reform Bill, the spokesman for the UK’s Treasury Office spokesman stated that the government should look into the supposed loophole which allows spread betters to avoid paying income tax, capital gains tax and stamp duty on transactions. If such a move was to occur this could significantly damage the popularity of Spread betting, with many spread bettors being primarily attracted to the instrument due to the fact they are not required to pay tax on their profits.

In addition to the UK’s Treasury Office spokesman, there has been pressure from a number of members of the House of Lords. With Lord Eatwell saying that spread betting “Is a really extraordinary form of tax avoidance within the financial services industry. I think a review of these particular forms of transaction would be very useful, particularly in the light of the fact that the Australian government has now declared that these forms of contract are not exempt from tax and indeed are subject to both income tax and capital gains tax under Australian tax law.”

It shall be interesting to see whether the government will look to tax financial spread betting, though much of the rhetoric seems to massively overstate the scale of this alleged loophole. With many institutions preferring CFD’s to financial spread betting due to the fact that losses from CFD trading can be written off against capital gains tax. With the vast majority of Spread betting customers being retail clients and further the majority of these clients in fact losing money, any tax on financial spread betting may not be as lucrative as many of the proponents appear to believe it would be. There also remains the question of whether financial spread bets should be classified as a form of gambling or as a financial instrument subject to tax.

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