Compare the UK’s Top 10 online brokers
Finding the right online broker can be a daunting experience as the competition is huge and especially in the UK there are tons of providers out there offering a big range of different trading platforms. An online broker will allow you to buy, manage and sell financial instruments and picking the right one is very important to become a successful trader. For this reason here at TopTradingPlatforms.co.uk we have decided to help you out by listing what our experts believe are the UK Top 10 online brokers. By clicking on the name of the broker you will access the full review and you can read why they were included in the UK Top 10. Below we have also provided further information in regards to what to watch out when choosing an online broker.
Why chose a Financial Conduct Authority (FCA) Regulated Broker
If you are living in the UK it is really important that you choose a broker that has been licensed by the Financial Conduct Authority (FCA). The reason is that it will be easier to check the history of a regulated broker in this case (this is available in the FCA filings) and also the broker will have to maintain top standard of service which are dictated by the regulator.
How the FCA Protects Traders
One of the duties of the FCA is to protect players from rogue brokers. They do that in 3 ways:
a) Pre-consumer Stage FCA intervention
The FCA has a Financial Services Register with all companies, individuals and bodies that are regulated by the FCA. This record is fully available to the public and traders can see the situation of a broker before registering or committing funds to trade financial markets. The FCA will be able to provide the following records:
- Trading names and contact details of regulated entities.
- The regulatory ‘status’ of the entity
- The names and details of entities operating within and outside the UK without FCA authorisation, exemption or approval.
The register has a very important function and it is fundamental in detecting problematic brokers or faulty financial markets products. It will prevent customers to put their money at risk with a unstable operators.
b) Active Consumer Stage FCA intervention
Since things evolve quite quickly in this industry it is possible that online broker lose their way down the road. A clear example of this happening was with MF Global. That broker show how easy it could be for even regulators to miss warning signs. The end result was that traders lost all their money when the firm collapsed and it become clear that MF Global took money from segregated accounts to try and fund their gradually failing operators. When the company eventually went in insolvency, traders lost all their money. So for a regulator it is important to consistently audit and assess online brokers and flag any early warnings of failing financial health. FCA are doing consistent risk-assessment of the firms that have a license with them and they make sure traders will always get the maximum transparency.
c) Post-Consumer Stage FCA intervention
Sometimes an online broker just become insolvent. It only takes carelessness for this to happen. Alpari UK for example became insolvent as they were providing too much leverage to their consumers without steps that will mitigate the risk of losses by their clients in case of huge slippage. When the Swiss National Bank de-pegged the EURCHF currency pair, the Swiss Franc dropped 3,000 points and wiped out client accounts with Alpari UK that were left unable to cover.
When things like this do happen the FCA’s Financial Services Compensation Scheme (FSCS) help traders who have lost money due to insolvency of their financial firms. Before clients can file for compensation a company must be declared in default which means they will not have sufficient assets to meet its obligations. In this case the company will be unable to pay claims that will be made against it. Compensation will be paid for financial loss and there is a limit on what it can be paid out as compensation.
The Role of the Financial Conduct Authority in Regulation
The Financial Conduct Authority (FCA) is the agency that is responsible to regulate the financial markets in the UK. It has the HQ in London and it used to be called Financial Services Authority (FSA) until 2013.
Financial Conduct Authority (FCA) Overview
The UK financial services industry is made of thousands of financial services companies. The Financial Conduct Authority regulate about 56,000 financial firms based in the UK.
Origins of the Financial Conduct Authority (FCA)
From 2001 to 2013 it was the Financial Services Authority (FSA) that regulated the entire financial services industry. It was an independent body that was fully funded by the companies that it regulated. When an audit was done following the 2008 cash the FSA was perceived to have failed in its regulatory oversight of the banking industry.
The UK government decided to make some reforms and they changed the structure of regulation of the financial services in the UK. With a law passed in 2012 they have marked the dissolution of the FSA and the creation of two new agencies:
- The Financial Conduct Authority (FCA), which will regulate 56,000 firms in the financial services industry in the UK and also take over prudential regulation of 24,000 of those.
- The Prudential Regulation Authority, which would be responsible for majority of prudential regulation.
The FSA ended to operate in April 1, 2013.
Functions of the FCA
The FCA is therefore a conduct and a prudential regulator. The FCA has a market-based approach in this regulatory supervision of the brands.
a) As a Conduct Regulator
This means that the FCA performs the following functions:
- Regulating the marketing of financial products
- Regulation of payment systems
- Supervision of banks in the UK
- Maintaining the new set of rules set out in 2012 for independent financial advisers
The FCA will risk assess financial services company’s business model to check if it will have market integrity and also if it will treat fairly the customers. Those are the 3 pillars of approach used by the FCA when they are supervising the 56,000 firms in their portfolio:
- 1st Pillar: for the biggest companies a system of proactive supervision is used. There are scans and stress tests perform to prevent any sign of trouble before it is too late.
- 2nd Pillar: Reactive supervision is also done around special events. This means the FCA can do measures to protect the market in case of emergency.
- 3rd Pillar: The FCA also scans multiple firms on a sector-by-sector to see if there are specific threats against a particular industry or sector.
Where there is imminent harm to consumers and the markets, the FCA will take actions.
b) As a Prudential Regulator
The FCA also conducts prudential regulation of over 24,000 firms. This means that the FCA checks the state of the financial health of companies as those are requested by law to have a minimum operating capital and also keep clients funds in tier 1 banks segregated accounts. The FCA will therefore assess the risks of the business and put in place systems to manage those risks and mitigate against sudden large costs that companies can occur due to their business model. Again they use 3 pillars to conduct their job:
- P1: These are companies that if they will collapse will cause long lasting financial and reputational damage to clients, cutomers and the marketplace. This is why they are closely monitored and they have a liquidy and capital base assessments done every 24 months.
- P2: Those are companies that if they would collapse would cause damage to both consumers and client assets but would not cause widespread systemic damage. In this case checks are made every 48 months.
- P3: Companies that if they would collapse won’t cause significant damage to client assets, consumers or the market. In this case checks are done only when there are some substantial risks.
Financial Conduct Authority Final Thoughts
The Financial Conduct Authority has done a great job in putting a very robust regulatory structure for the UK financial markets. Their measures have boosted market confidence and helped lot of online investors. When you are about to invest online make sure you only pick online brokers that are FCA regulated to reduce greatly risks.