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UK binary brokers - FCA Regulated brokers

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The Financial Conduct Authority, or the FCA, is the UK's financial watchdog for ensuring fairness in the financial markets. As part of its responsibility, the FCA is also tasked with monitoring brokers that offer financial trading.

The UK brokerages regulated by the FCA are required to ensure a safe trading environment for their clients.

The FCA was established in April 2013. Its predecessor was the FSA, or the Financial Services Authority, and was formed in December 2001. In fact, the FCA is one of the few financial institutions to earn respect and is known for its stringent rules.

The UK regulator has always been in the news. Among the many things the institution is tasked with, the primary focus is investor protection. The UK’s watchdog is known for going after financial institutions and businesses that resort to unfair market practices.

Some examples include the institution going after banks in the UK when they resorted to undue fees over some of the services provided in regard to payment protection insurance.

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Financial Conduct Authority (UK)

The FCA is an independent institution that is structured as company. After receiving the royal assent for the financial services act of 2012, a regulatory framework for the financial services sector was created. This led to the establishment of the Financial Conduct Authority in the UK. The institution is considered a leading authority in providing arbitrage services and focusing on investor protection.

The institution is known to be especially strong against the various payday lenders and short-term loan companies. In the financial and investment sector, the FCA imposes strict regulations for companies to obtain legal licenses.

The FCA plays a central role in regulating the financial services industry. The institution promotes investor interests and ensures market integrity and fairness. The watchdog also promotes healthy competition, bearing in mind the best interests of the investor.

Furthermore, the regulator educates the general masses about various financial products, including binary options, and the risks that come with it. It also issues general warnings about potential fraud businesses.

Within Europe, the FCA is considered one of the most stable and strict financial watchdogs for the industry.

Regulation of binary options in the UK

The binary product in the UK can be viewed as both a financial instrument and gambling. Currently, the FCA regulates forex brokers but doesn’t regulate binary options (or digital options). Regulating binary options is the task of the UK’s Gambling Commission.

There are some binary firms operating with gambling licenses provided by the UK GC. On the other hand, we see FCA regulated forex brokers that offer binary options as a side product. The way both these licenses are obtained are quite different.

Although the FCA does not regulate digital options, this has not stopped it from publishing warnings about various brokers. The watchdog issues such warnings in the general interests of the public at regular intervals and calls out the firms in its reports.

Any brokerage that targets the UK public is subject to the FCA’s purview, and thus, brokerages must be based in the UK. In doing so, the regulator has taken a proactive role in ensuring only legitimate businesses are able to offer their services to UK residents.

Among the financial side, the OTC derivatives markets, which also include other types of options, such as FX options and forward contracts, already fall under the current MiFID II regulation. Therefore, firms that offer such products (mainly banks) are expected to provide full reporting and transparency for their clients.

If any of the binary options contracts are also put under this scheme, it could mean most unregulated binary brokers will have to obtain FCA licenses, especially if they offer the specific contracts to the UK investors.

Benefits of trading with a FCA regulated broker

So far, there are many Forex and CFDs brokers that are regulated by the FCA and offer their financial products to UK citizens. Such brokers aim to bring the best practices and transparency into the business. This puts the licensed companies at an advantage due to the strict guidelines and regulations enforced by the FCA.

FCA regulation ensures the following:

  • Client funds are held in custodian bank accounts
  • Client funds are not used for business purposes
  • Brokers are subject to audits that include trade confirmation and pricing
  • The broker has enough operating capital

Comments by traders

At present, binary options are subject to regulation by the UK Gambling Commission. However, current developments on the legislative side are expected to bring about some changes in the near future. The FCA is contemplating treating digital options as a financial product.

Given the increase in popularity of binary options, the FCA is rumoured to make a decision on including some types of binary options contracts under its umbrella. The decision is expected to have more clarity around early January 2018 when the EU-wide MiFID II rules go into effect. This would mean binary brokerages would be required to obtain the FCA’s license if they want to continue doing business in the UK.

For the trader, it should suffice to know the ongoing changes will only mean the landscape will shift toward a more transparent binary options industry.


King Kruel's picture

Very informative article, thanks for clearing out binary options regulations in the UK, hopefully FCA will finally regulate binary brokers and all the scammers will be forced to shut down. I was wondering if FCA brokers will be able to operate in the rest of Europe after Brexit. They will probably need to agree new deals.

King Kruel
Toni H.'s picture

Earlier, brokerages could obtain FCA licenses, which in turn allowed them to transfer their financial services into Europe. However, with the Brexit referendum, this advantage is likely to be taken away. Therefore, brokerages with FCA licenses will still need to apply for EU licenses to offer their services to the region. Still, the FCA will most likely remain the financial watchdog in the UK. This means UK-based investors will have an institution that will continue to look after their interests and promote and maintain the integrity of the markets. For those based in the UK, opting to trade with an FCA regulated broker is the ideal solution.

Toni H.