Forex licence in Great Britain is required because otherwise, the brokers have no legal grounds to provide their professional services. Brokers are interested in getting a licence because having this document guarantees their reliability for potential customers. In the UK, such permits are issued by financial bodies. These financial regulators check the validity of the broker, and dealer's operations, perform the audit and regulate the dealer broker when the licence is issued. This article provides key regulatory nuances and helpful information about supervision and licensing.
Legal regulation of brokering activities in the UK
Providing financial services as a type of economic activity is subject to state regulation in Great Britain. Two regulatory bodies are in charge of controlling this activity:
- Prudential Regulation Authority (abbreviated name PRA);
- Financial Conduct Authority (FCA).
- The regulators aim to guarantee that brokers can fulfil their obligations before traders.
Except for the controlling function, the regulator ensures the legal protection of traders and investors if disputes arise and investigates their complaints. Regulatory Bodies audit broker activity and check whether it corresponds with British licence requirements and conditions.
Efficient control is on the side of FCA because it is an independent state body in charge of control over financial companies which function in the UK. This regulatory body appeared in 2013, but it was initially called Financial Services Authority or FSA, and later it was renamed FCA. The name change remained the same mission of this unit: it was created to secure the efficient functioning of the regulated markets. This task is backed up by operating goals aimed at providing proper customer protection level, protection and increasing the integrity of the financial system of Great Britain, and promoting efficient competition for the benefit of customers.
The main goals of the FCA are the following:
- regulation of marketing of financial products;
- setting up minimal standards and requirements towards Forex licensees;
- ensuring maximal protection, security, confidence for the consumers and promoting efficient competition in the interests of the consumers;
- assistance to licensees in building trust with the customers;
- performing annual audits and inspections;
- protection and increasing the integrity of the financial system of Great Britain.
FCA functions that regulate brokering activities in Great Britain are based on MiFID II regulations and EAOC requirements. FCA has its own regulatory basis, and it is strong enough to ensure that all brokers would act in the interests of traders and that their activity is performed in a transparently regulated environment. The goals of the FCA are realised to prevent financial abuse.
Getting a brokerage licence in the UK is directly connected with meeting the FCA's requirements and standards and normative-legal demands. The regulator cooperates with the Bank of England (also known as BOE)
Regulation of forex brokers in the UK
FCA is a potent regulator with powers to regulate effective standards applicable to financial companies which work in the UK. The FCA as a regulator, has powers to:
Ensure supervision over the activity of financial institutions;
- To control marketing and ADS materials;
- To control audited financial reports of financial companies in Great Britain;
- To suspend the work of any company for a period of up to 1 year if any fraudulent activity is suspected;
- To revoke the licence for an indefinite term upon own discretion.
To comply with the effective legislation, all brokerage businesses in the UK must obtain FCA licences. Getting the licence and keeping it means meeting strict requirements. Thus licensed forex brokers are considered to be highly reliable. Besides, they must adhere to multiple laws and codes of practice. If FCA considers it reasonable, it can amend the normative legal documents and code of practice to ensure high consumer protection.
FCA is fully responsible for the protection of customers against unfair forex brokers. All brokers whose activity is subject to the FCA regulation must respect management principles determined by the supervisory body and distinguish accounts (own assets and funds of the clients must be kept separately).
Suppose you want to get a broker licence in the United Kingdom. In that case, you must ensure a working capital of at least 1 million Pounds. FCA provides control over a number of areas, some of which we provide below for your information:
- business activity of the financial company;
- cooperation of the company and its end consumers.
Efficient regulation ensures the integrity of the financial market. In addition, it contributes to the stability and reliability of the financial system of Great Britain. The company can attract consumers and provide private services of a high standard in an environment of healthy competition. All operators who intend to get the licence of Forex broker in Great Britain. FCA demands brokers provide periodic financial and annual audit reports about their investment holdings.
FCA conducts efficient investigations in case of abuse on the side of customers or any fraudulent activity. If the companies act irresponsibly, the regulator can revoke the licence and apply sanctions. At the same time, consumers should be on guard while choosing a Forex broker; make sure it is an FCA-licensed Forex broker instead of a non-regulated Forex broker registered offshore.
To get a Forex licence in Great Britain, the company has to create a specially dedicated department responsible for registering and processing all consumer complaints. If the consumer is offered an unfair deal, such a person should inform the Financial Ombudsman Service of Great Britain. After this consumer can file a lawsuit.
Benefits of trade on the regulated market
Forex brokers, regulated by FCA, offer high-quality service and assurance that the capital of currency traders is protected on their platforms because licensed brokers must regularly provide the regulator with proof that the clients and the company's funds are managed and kept separately. FCA also guarantees that credit leveraging is applied to limit the potential losses of the trader. Also, suppose any problems arise in the currency market. In that case, the trader will be protected and get compensation from the official regulatory body according to the Financial Services Compensation Scheme (FSCS). This scheme gives guarantees that the investments are secure.
Getting the forex licence in Great Britain: licensee requirements
To get a broker's licence in the UK, the applicant must meet specific criteria. Below we provide the main ones:
Amount of capital
To get a Forex licence, a minimal amount of capital investments in Great Britain must be at least 125 thousand GBP. The limited licence type requires the amount of capital to be equal to 500 thousand GBP. In contrast, a full dealer's licence requires at least 730 thousand GBP capital.
Forex licences in the UK can be issued to non-residents. Still, the executive director has to be a local person. This point means that the company must demonstrate control inside Great Britain and thus requires physical presence in the country and regional personnel. Also, the employee responsible for meeting normative requirements must be local. In addition to these criteria, these experts must pass tests and prove they can hold these positions; FCA approval is required.
Regulation on crypto pairs
At the end of 2017, FCA warned about the risks connected with the trade of cryptocurrencies on Forex. Considering that the Forex market has the highest liquidity in the world but is not stable, traders must understand all possible risks. An official warning from the FCA was published on the 14th of November 2017 and stresses the high risk of speculative products such as crypto pairs.
At present, CFD is fully regulated by the FCA. Rules of trade with crypto pairs in Great Britain are still being discussed. The parliament has to elaborate further directions on this matter.
Great Britain is one of the world's centres of trade on the Forex market. This jurisdiction has promising prospects for running a business in this area. Suppose you have questions about the matters written in this article. In that case, you are welcome to ask your questions to our experts and get consultation about the regulation of broker's business in the UK. If you want to learn more about our services, please fill out the contact form below.