How you choose to trade the markets is important, but who you invest with is equally as important. Your choice of broker can influence the success of your day trading or long term investing. This article will explain why FCA regulated brokers are essential trading partners for any UK investor. We’ll explain the pros and cons of using FCA regulated brokers and highlight the best regulated brokers in the UK.

What is an FCA Regulated Broker?

An FCA regulated broker is a UK stockbroker that falls under the full oversight of the Financial Conduct Authority. The Financial Conduct Authority, known by professionals as the FCA, is the UK financial services regulator. The body gives explicit permission for financial firms to run brokerage operations, and the brokers who successfully receive such permission are known as FCA brokers. 

UK brokers who offer brokerage services to UK traders without permission are deemed to be ‘unregulated’. Any firm offering regulated activities without permission to do so is committing a criminal offence. 

FCA brokers are usually registered and domiciled within one of the UK’s 4 countries – England & Wales is the most common domicile for a London-based broker. 

To learn more about the regulation of UK brokers, read our guide to how stockbrokers are regulated. 

Who are the best FCA regulated brokers?

The question of which FCA regulated broker is currently the best deserves a dynamic and continuously updated answer. Our shortlist of the best regulated FCA brokers is below. 

All of these brokers are supervised by the FCA, so they cannot be sorted by level of regulation. We, therefore, ranked these brokers on the basis of trading costs (including account fees), such that the broker at the top will charge you less to trade than the runners up. 

Because every trader has different needs, we suggest that you open a few accounts and deposit just a small sum to practice trading and get a feel for which FCA regulated broker you prefer. 

Why is it important to choose a regulated broker?

If you read the financial news headlines, you may have seen many stories about what can go wrong when a financial firm operates without any regard for regulatory compliance. 

Consider the case of Jonathan, who spoke to the BBC for a short web TV series about unregulated forex brokers called Scam City. He entrusted his money to a firm that claimed to be FCA regulated, but this turned out to be an outright lie. Jonathan thought he was invested through an FCA broker, but in reality, he was handing his money over to an unknown group of individuals that were subject to no formal oversight. Keep reading to find out how you can tell whether you’re dealing with a real firm. 

Over a series of deposits, he invested £17,000 of his own money, but over one Christmas break, the value of the account plummeted dramatically. Jonathan’s account was left with only £48. 

Because the firm was unregulated, the FCA did not have the same enforcement powers that it would have to compel a firm under its jurisdiction to make amends and potentially compensate investors when things go wrong. 

This sorry case highlights why it’s important to choose a regulated broker, whether you’re looking to trade forex, shares or other financial instruments. The FCA is an organisation that employs an army of over 1,000 to help protect consumers like you. Every rule they create is designed to ensure that the market for financial services operates fairly and that consumers don’t get a raw deal. 

When investing and risking a significant sum of money, it’s a no-brainer to choose a firm that willingly complies with the FCA handbook and is inspected and policed on that very matter.

What are the pros and cons of FCA regulated brokers?

The pros of investing with an FCA regulated broker are numerous:

1. Reassurance that you’re placing your trust in a firm with integrity.
2. Complaints should be dealt with in a timely manner.
3. Segregation of client assets from business assets will help protect investors in the event of the firm becoming insolvent.
4. Right to arbitration via the Financial Ombudsman Service if you feel you’ve been treated unfairly.
5. Greater firm stability due to the requirement for firms to meet minimum capital requirements

Although it’s possible for any firm to go out of business, it’s actually very rare for a large, well-known, FCA regulated broker to cease trading in a disorderly manner. In fact, there has not been an example in recent decades.

There aren’t any cons of investing with a regulated broker, beyond the obvious point that regulation carries a steep cost, and therefore regulated firms must charge higher trading fees to cover these administration costs. However, to appreciate that a small element of the fees you pay are covering the cost of enforcing good behaviour by your firm is certainly a price well worth paying. 

How will you know if a broker is regulated by the FCA?

It is both very easy and very difficult to determine whether the firm you are speaking to is FCA regulated. 

It’s easy because you can look up the name of the company on the FCA’s register of firms. It’s never been easier to check for yourself via the FCA website.

However, it’s also difficult because this doesn’t won’t protect you if you’re speaking to a fraudster who is impersonating a regulated broker.

There are a few simple steps to take to ensure you’re dealing with the official channels of a regulated broker, to prevent you from signing up to a Stocks & Shares ISA or investing app under false pretences: 

1. Sign-up via the official website of the stockbroker which you should navigate to through a trusted source. Trusted sources could include trusted intermediaries (such as our own UK stockbroker listing), price comparison websites or financial media. 

2. If you’re happy that the URL of the website you’re on is the official URL, check that your access to the site is secure by looking for the padlock icon to the left of the URL in your web browser. This will reduce the risk that you are actually on a different website that is pretending to look authentic. 

3. Never join a brokerage in response to a cold call. Cold calling is uncommon amongst FCA regulated brokers, therefore any call out of the blue is a red flag. 

For many more tips to research your chosen broker and avoid scams, read our guide to avoiding investment scams, which is the largest and most comprehensive guide of its kind in the UK.

 

Does the government recommend using FCA regulated brokers?

Many official sources of consumer guidance recommend using FCA regulated brokers. 

The Financial Conduct Authority itself says very plainly that “You should only deal with financial services firms that have been authorised or registered by us.”

The government-run Money Helper website (formerly Money Advice Service), provides the advice that “Even if you’re using an authorised firm, Financial Conduct Authority (FCA) rules only generally apply to mainstream products, rather than ‘niche’ investments, which might be completely unregulated.”
The Prudential Regulatory Authority (PRA), which is part of the Bank of England, warns that it does not necessarily regulate all brokers, because this is the jurisdiction of the FCA.