Brokers Are Encouraging UK Clients to Trade with Foreign Firms: FCA The regulator has already taken action against a few such brokers.
The UK Financial Conduct Authority (FCA) has published a Perimeter Report for 2020-2021, highlighting complex issues and regulatory responses to the gaps in the country’s financial services industry.
Calling out the forex and contracts for differences (CFDs) trading platforms, the watchdog agency said that it has identified several brokers encouraging clients to trade with entities in third-country jurisdictions rather than their UK business.
These companies are using this method of introducing brokers (IBs) and affiliates to carry out the unregulated activities, the British regulator highlighted.
FCA’s regulatory requirements are very strict with strong limits on leverages and marketing efforts. However, offshore brokers can offer significantly higher leverage to retail traders and offer bonuses to motivate them to trade.
“We are aware that some providers of retail derivatives (CFD and Futures) are encouraging retail clients to trade with firms in third country jurisdictions, by using comparison tables to highlight that retail consumers can get higher leverage through third-country intra-group entities,” FCA noted. “Some firms have also failed to highlight the protection that retail consumers may lose by transferring their account, such as the loss of negative balance protection.