What is the FCA?
Contents
The Financial Conduct Authority (FCA) is the primary financial regulatory body in the UK. It was established in 2013 to oversee the functioning of financial markets, maintain their integrity, and protect consumers. Today, FCA regulates around 60,000 firms in the UK, including banks, financial advisors, brokers, and investment firms. It operates independently of the UK government and is funded by fees charged to the firms it regulates. Its primary role is to ensure that financial firms operate with transparency and fairness, while maintaining healthy competition in the market. The FCA works to keep consumers and investors well informed, issuing warnings about fraudulent schemes, unregulated platforms, and similar. Additionally, the FCA regularly updates its watchlist of firms that pose a risk to consumers.
The FCA is highly regarded for its strict oversight and comprehensive regulation. It is independent of the UK government and is transparent about its operations.
FCA Regulated Brokers
When Was the FCA Established?
The Financial Conduct Authority (FCA) was created as the Financial Services Act 2012 came into force on 1 April 2013. It replaced the Financial Services Authority (FSA), a a quasi-judicial body accountable for the regulation of the financial services industry in the UK between 2001 and 2013.
The Financial Services Act 2012 created a regulatory structure built on three pillars: the Bank of England´s Financial Policy Commitee, the Financial Conduct Authority (FCA), and the Prudential Regulation Auhtority (PRA).
What Does the FCA Do?
- Licensing and Authorizing Firms
The FCA ensures that any firm offering financial services, including trading, is authorized and regulated. Before giving a license, the FCA assesses the firm’s financial stability, ethical standards, and competence. This process helps prevent inapropriate firms from entering the market. - Enforcing Rules and Regulations
The FCA enforces strict rules to ensure that all firms operate in the best interest of consumers. These regulations cover everything from customer protection, fair pricing, and transparent advertising to safeguarding client funds. Firms that fail to comply can face fines, sanctions, or revocation of their licenses. - Market Oversight and Monitoring
The FCA continuously monitors financial markets and the conduct of regulated firms. This includes surveillance for illegal activities like market manipulation, insider trading, and fraud. The FCA can conduct investigations and bring legal action against violators. - Protecting Consumer Rights
The FCA is responsible for protecting consumers from misleading financial products, high-risk investments, and fraudulent schemes. It requires firms to present information clearly, provide fair customer service, and offer proper disclosures about risks. If a firm misleads or exploits consumers, the FCA takes action to enforce penalties. - Ensuring Competition
The FCA promotes healthy competition in the financial sector, making sure that no firm exploits its market position to disadvantage consumers. It encourages firms to innovate, offer better services, and compete on pricing, ultimately benefiting traders.
How Does the FCA Protect Traders?
- Regulating Trading Platforms and Brokers
The FCA ensures that trading platforms and brokers offering services in the UK comply with strict rules. This includes forex trading, contract-for-difference (CFD) trading, and derivatives. Brokers must follow FCA standards for things such as transparency in pricing, avoiding misleading claims, and informing traders about the risks associated with high-leverage products. - Protecting Clients in the Event of Bankruptcy
FCA-regulated firms are required to keep client funds in segregated accounts, separate from their operational funds. This ensures that, in the event of bankruptcy or financial difficulties, the clients’ money is protected and can be refunded.
When a company does not keep client funds segregated from company funds, it is much more difficult for the clients to get their money back during a bankruptcy proceeding, since they money may go into the general pot used to pay all entities with a claim against the company. That is why the FCA rule about segeration is very important.
To add an additional layer of client protection, there is also the Financial Services Compensation Scheme (FSCS). The FCA oversees the FSCS, which protects consumers if a regulated firm collapses. If a company goes out of business and cannot return client funds, traders can receive compensation through the FSCS, up to a certain limit.
- Leverage and Margin Requirements
The FCA has imposed limits on the amount of leverage that brokers can offer retail traders (non-professional traders) to protect them from excessive risk. High leverage increases the risk of substantial losses, and by capping leverage, the FCA helps mitigate this. - Promoting Transparency
The FCA ensures that brokers must provide transparent information about trading costs, risks, and terms of service. This includes making sure that spreads, fees, and potential slippage are clearly communicated to traders, reducing the risk of being misled by unclear or hidden costs. - Consumer Complaint Resolution
The FCA requires firms to have clear and fair processes for resolving consumer complaints. If a dispute arises between a trader and their broker, the FCA can intervene through its Financial Ombudsman Service, which acts as a mediator to resolve disputes. This is especially important for small-scale retail traders, who might not have the time, money and energy to take on a standard court case against a broker.
Examples of FCA Enforcement
The FCA has a track record of enforcing regulations and penalizing firms that break the rules. It has for instance fined major financial institutions for mis-selling financial products or manipulating market prices. In more serious cases, the FCA has shut down firms that engaged in fraudulent activities, such as fake brokers offering binary options or misleading investment schemes. In the case of significant misconduct, the FCA can also ban individuals from working in the financial services industry.
Examples
October 2024 – FCA fines Starling Bank almost £29 millions for failings in their financial crime systems and controls
In October 2024, the FCA fined Starling Bank Limited £28,959,426 for failings related to the bank´s financial sanctions screening. The bank had also repeatedly breached a requirement to not open accounts for high-risk customers.
The Starling Bank case is an example of how the FCA has improved the pace of its enforcement investigations, as it only took 14 months form opening to outcome. (The average for cases closed in 2023/2024 was 42 months.)
When the FCA reviewed financial crime controls in 2021, it identified serious concerns with Starling’s anti-money laundering and sanctions framework. The bank agreed to not open any new accounts for high-risk customers until the framework had improved. Instead of honoring the agreement with the FCA, Starling opened over 54,000 accounts for 49,000 high-risk customers between September 2021 and November 2023.
In 2023, Starling became aware that its automated screening system was not working properly, and a subsequent review identified systemic issues in its financial sactions framework. These issues had left the financial system open to criminals and persons subject to sanctions.
August 2024 – FCA fines and bans Martin Sarl for dishonest and reckless conduct
In August 2024, the FCA fined and banned Martin Sarl from working in the financial services industry and fined him £5,021 for acting without honesty and integrity. Martin Sarl was the sole director at Perry Prowse (Insurance Consultants) Ltd. Between 7 November 2017 and 24 October 2019, he failed to pass client´s premiums to insurers, which resulted in the customers being left uninsured. The FCA investigation showed that Martin Sarl had used the money to pay his personal debt and that of his firm. He had not kept the funds separate, even though the Client Money Rules require firms to segregate client money.
FCA withdrew the approval for Sarl to perform the function of SMF3 Executive Director at Perry Prowse, and in September 2019, the FCA took action to remove all of Perry Prowe´s regulated activities with immediate effect. The firm entered into liquidation in January 2020.
One customer had an insurance claim refused because they were uninsured due to Sarl´s actions, and that customer was reimbursed through the Financial Services Compensation Scheme.
Conclusion
The Financial Conduct Authority (FCA) plays a crucial role in protecting traders and ensuring the integrity of the UK’s financial markets. By enforcing strict regulations, licensing firms, monitoring conduct, and ensuring fair treatment of consumers, the FCA fosters a safe and transparent environment for traders. Traders benefit from protections like segregated accounts, compensation schemes, and clear dispute resolution mechanisms. As one of the world’s leading financial regulators, the FCA is instrumental in maintaining market confidence and protecting retail traders from dishonest practices.