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A Complete Guide to FCA Regulations for Binary Options Brokers

The Financial Conduct Authority (FCA), which was formally known as the Financial Services Authority (FSA) is an independent financial regulatory body that was established by the UK government. Find here a complete guide to FCA regulations for Binary Options Brokers.


A Complete Guide to FCA Regulations for Binary Options Brokers

The Financial Service Authority (FSA) was established in December 2001, under the Financial Services and Markets Act of 2000. The FCA replaced the FSA (Financial Services Authority) as regulator for financial services in the UK on 1 April 2013. Since then, it has been the foremost regulatory agency for financial service providers in the United Kingdom.

The FCA creates policies and standards that regulate the conduct of financial service providers including credit union, forex brokers, binary options brokers and banks, just to mention a few.

The overarching goal for FCA is to protect consumers from fraudulent financial services. In the event that a firm does not comply with the stipulated regulations, FCA has the mandate to file a suit against the non-complying firm.

According to the FCA, their main goals are to ensure that:

  • Firms in the financial industry operate with integrity
  • Financial firms provide consumers with reliable products
  • Consumers and firms have mutually beneficial transactions/interactions

The regulatory body is in charge of overseeing the conduct of more than 50,000 firms to ensure that they adhere to industry standards to minimize the potential harm to consumers and to the industry if such firms fail.

Even though the government established the FCA, the government does not fund them. Instead, the organization is funded by the firms it regulates, by charging these firms a fee that permits them to conduct their financial activities.


How does the FCA regulate the industry?

FCA rules and regulations apply to all financial firms that are operating in the UK. These firms can range from small, sole proprietorships, to online brokers to large multinational firms.

Binary options brokers and other service providers who offer online trading services and operate out of the UK are also required to comply with the financial services regulations stipulated by the FCA.

To allow a binary options firm (or any other financial firm) to be licensed and operate in the UK, the FSA assesses the level of risk posed by a particular financial firm.

The FCA ensures that the firm is properly managed and is applying transparency measures to protect the consumer from adverse effects of fraud or bankruptcy on the part of the financial firm.

The FCA recognizes that certain activities such as online trading come with inherent risks. Therefore, the regulatory body plays a role in minimizing these risks while still allowing financial firms to offer their services and for consumers to access these services.

The Prudential Regulation Authority

When the FSA was dissolved, its regulatory role was passed over to the FCA and the Prudential Regulation Authority (PRA).

The PRA oversees the conduct of insurers, deposit takers and investment services, under which binary options brokers are categorized.

In working alongside the Prudential Authority, the FCA ensures that even if a firm is poorly managed and made bankrupt, this will not adversely affect consumers’ deposit.

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What does this mean for binary options traders?

Binary options brokers who are regulated by the FCA are significantly much safer to invest with than those who are not.

It is common to find brokers who are not FCA-regulated. This does not mean that they are definitely fraudulent. But, wouldn’t you rather trade on a platform that is definitely and openly adhering to financial industry regulations?

Trading with an FCA-regulated binary options broker means that your deposits will be protected even if the broker goes bankrupt.

Another advantage of investing with a platform that is regulated by the FCA is that you can bring forward any complaints you may have about the platform. The FCA may not have any power to take action against a firm that is unregulated.

Is CySEC regulation not enough?

As you look around for suitable binary options brokers, you will come across some brokers who say they are regulated by the Cyprus Securities and Exchange Commission (CySEC). This is a good first step and it is a healthy indicator of a trustworthy platform.

But, the CySEC regulations apply to binary options brokers who operate out of Cyprus. It is true that by being CySEC-regulated, firms can operate anywhere in the European Union but each country has its own regulations that financial firms much adhere to.

So, if a binary options broker is regulated by both CySEC and FCA, this is a double advantage!

However, in some cases, there is only a need for either of the two. If a firm is operating out of the UK only, there is obviously no legal requirement that they be CySEC regulated; being FCA regulated is just enough.

In summary, the FCA provides regulations for financial firms operating out of the UK. Binary options brokers are among the investment firms that are regulated by the FCA.

There is an added advantage to trading with a broker who is FCA-regulated as it provides assurance that the broker complies with industry standards.

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General Risk Warning: The financial services provided by this website carry a high level of risk and can result in the loss of all your funds. You should never invest money that you cannot afford to lose. Your capital may be at risk. This material is not investment advice.

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