Broker Licences in the UK: Short Overview 

In the early days of online trading, any website that claimed to be a trading platform received customers. But today, regulators have stepped in and ensured every platform offering this service meets specific requirements and has a valid broker UK licence. The Financial Conduct Authority (FCA) oversees brokers; only trustworthy ones retain licences. Their high ethical standards demand for brokers is a safety net for any trader.

That means it’s not business as usual for brokers who operate from exotic locations. As long as they intend to operate in the UK, they need a licence from the FCA, which regulates FX, CFD Crypto, stock, and any other security trading broker operating in the country.

While rogue brokers might bypass this requirement and operate in the shadows, the trader must identify and isolate them. As a review site, we help you with that as well. We understand trading risks and why you must choose a trustworthy broker carefully. So, pick only FCA-regulated brokers in the UK for your peace of mind.

What is a Broker Licence?

The FCA regulates every business in the financial sector. Therefore, firms like brokers and trading platforms get an FCA licence to operate in the country. This licence is an official document that permits the firm to offer its services within the country. Put:

These rules protect traders by ensuring they are treated fairly and offered suitable products and services.
A broker’s licence in the UK ensures greater protection should things go wrong. You are also have the Financial Services Compensation Scheme (FSCS) backing you in case the firm goes out of business. The FSCS compensation affected customers when a financial institution goes bankrupt.

If you have a complaint, you can contact the Financial Ombudsman. But that’s impossible if you use an unregistered broker, and FSCS cannot protect you. It means that it’s unlikely you’ll get your money back.

Broker’s Regulations

The FCA broker regulations ensure that brokers operate fairly and transparently. There are many that it would take us a lot more than this piece to cover, but here are the most important ones an FCA-regulated broker must follow:

Client money protection

FCA requires all brokers to separate clients’ funds from the firm’s own funds. This segregation of accounts protects clients if the broker is insolvent.

Risk management

Brokers regulated by the FCA must have risk management policies and procedures to protect clients from taking on too much risk. For example:

Sustainability Disclosure Requirements (SDR)

The FCA supports investment principles focusing on three critical societal areas: the environment, social issues, and corporate governance. The SDR requires brokers to disclose their impacts on the environment and society. They must provide clear and accurate information about the risks of trading different instruments, as well as any associated fees and charges. These disclosures help traders understand the effects of their actions and whether their activities align with their risk tolerance and social beliefs.

Complaints handling

Brokers must have a formal process for handling complaints. This process should investigate and assess complaints thoroughly, fairly, promptly, and consistently. The goal is to determine if the complaint is valid and, if so, decide on the appropriate action to address it.

AML and KYC requirements

The Financial Action Task Force (FATF) set the AML (Anti-Money Laundering) and KYC (Know Your Customer) regulations. In the UK, the FCA enforces them. These rules aim to stop financial crimes and ensure an honest financial system. Therefore, all brokers must adhere to these rules to prevent dishonest individuals from using trading platforms to launder money or fund terrorist activities. In addition, brokers must train their employees to identify such schemes.

The Importance of Having a Licence when Choosing a Broker

A broker licence in the UK is among the most important factors when picking a trading broker. It not only assures the safety of your funds but also sets some standards you should expect. Before a broker gets authorization to operate, the regulator imposes specific criteria and fees that a broker must meet. In the UK, a firm has to demonstrate its market viability through business strategy, budget, resources, and systems when they apply. Its directors and key employees must also demonstrate they have the necessary experience. The regulator takes these steps to ensure your safety.

But why should it be vital as you plan your trading experience? Well, here are four reasons to consider a broker licence:

European Broker Licences

As a UK trader, the first broker licencing agency that comes to mind is the FCA, but other equally competent ones exist across Europe. Let’s look at some of the top ones.

Financial Conduct Authority (FCA)

As we have already discussed, the FCA is the primary financial regulator in the country and regulates more than 58,000 financial service providers, including trade brokers. The UK is among the top financial and related professional services hubs, with London central to this position. Ideally, the FCA is one of the central regulatory bodies, and its licence is quickly accepted worldwide. 

Cyprus Securities and Exchange Commission (CySEC)

Cyprus is a member of the European Union and offers some of Europe’s lowest corporate tax rates. Due to the numerous trade treaties with other countries on double taxation, many brokers register with its primary regulator, the Cyprus Securities and Exchange Commission (CySEC).

European Securities and Market Authority (ESMA) 

The ESMA is the overall watchdog of the European financial markets but doesn’t issue broker licences. Instead, it works with the national regulators of the EU27 countries to strengthen investor protection and cooperation between national competent authorities. Since BREXIT, they have Memoranda of Understanding (MoUs) with the Bank of England (BoE) and the FCA. Its framework, e.g., the MiFID II, forms the basis of most legislative frameworks across the entire region.

Asian Broker Licences

Asia provides a lively market with new opportunities for traders each year. Some of the continent’s most reputable regulatory authorities include: 

• The Securities Commission of Malaysia (SCM)
• The Securities & Exchange Board of India (SEBI)
• Monetary Authority of Singapore (MAS)
• The Dubai Financial Services Authority (DFSA) and 
• The Financial Services Agency in Japan

MAS is the primary regulatory body in Southeast Asia. It oversees brokers’ operations in Singapore and influences neighbouring countries like Malaysia.

DFSA regulates all Dubai International Financial Centre (DIFC) financial services. It operates independently from the Securities and Commodities Authority (SCA), which handles trading and finance in the rest of the UAE.

How to Verify a Broker’s Licence

Now that you know how important a broker licence is, it’s the first thing you want to see before deciding whether to use the broker. Actually, this licence may be your only insurance against counterparty risk – probably the biggest threat in trading.

Many brokers claim to accept “institutional investors” when they don’t. They only do this to create an image of a high-end brokerage house. It is often a marketing move, often designed to lure in pro traders. Checking its regulatory status takes a few minutes but could save money and heartache. So, thoroughly vet your broker, or else face uncovered liabilities. You can quickly determine if your broker is authorised to operate in the UK. You can also learn all the activities for which the firm has permission. But how do you do it?

Here is the step-by-step guide:

1. Visit the UK FCA register website and search for the broker or its licence number in the search bar. A broker must display this information on its website, a legal requirement.
2. Licenced or unlicenced? Either the broker has an FCA licence or borrows its rights from another country to the UK. If it holds an FCA licence, under the status module, you will see the registration number and the certification to offer the services. But if it holds a licence from another country and operates in the UK, it will be labelled as “EEA authorized.” It will also provide the branch office’s address in the UK, if applicable. You can find the European country where the regulator for this company is based under the “Regulators” module.
3. Check services and permissions:

• In the Permissions Module, go to the section for conducting investment deals. You’ll find out if the broker has the authority to accept both retail and institutional clients. This information is important because some brokers claim to work with institutions to create a particular image. Don’t be misled by this marketing tactic aimed at attracting sophisticated clients.
• Is the Broker STP or Market Maker? If the broker is listed as having the limitation “matched principal,” it is authorized to act only as an agency broker (STP). Some brokers may claim they do not take any risk and pass on all their clients’ trades to the counterparties. To confirm this information, look under the Permissions section in the module for “Dealing in investments as principal.” This will provide a list of the types of clients a firm can accept, the asset types it’s authorized to deal with, and any limitations or restrictions.

4. Other names of the broker? To ensure you know all the brand names a broker does business under, check the module Trading/brand names. Brokers may use different brand names to promote various products for specific client groups.

Find out about best practices for secure trading in our other article.

Conclusion

Trading with regulated brokers in the UK is crucial for the safety of your investments. Stay safe and informed by choosing reputable, licenced brokers for a secure trading journey. When looking for brokers in the UK, it’s important to find ones licenced by the FCA. This ensures they are closely monitored and have strong protections in place.

Are you ready to start trading securely? Visit our broker review page to find FCA-regulated brokers and trade with confidence today.