FCA Identifies Brokers Encouraging UK Clients to Trade with Foreign Firms

The UK Financial Conduct Authority (FCA) has released a Perimeter Report for 2020-2021, which clarifies its perimeter' s complexities and highlight the gaps in regulatory responses to the potential for harm. For example, FCA has identified several brokers encouraging clients to trade with entities in third-country jurisdictions rather than their UK business.

Specifically, FCA alleged in the report that these companies are conducting the unregulated activities by using introducing brokers (IBs) and affiliates. They are doing this because FCA' s regulatory requirements are very strict with strong limits on leverages and marketing efforts. In contrast, offshore brokers can attract retail traders by offering significantly higher leverage and bonuses.

“We are aware that some providers of retail derivatives (CFDs 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 further explained. “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. This could also be part of a longer-term trend as firms become more global and deliver services predominantly via online platforms and mobile apps.”

Furthermore, many of these brokers are paying 'educators' and 'influencers' on social media platforms to complete their promotional activities, where they promise clients profitable results on investments and promote the potential to live like a celebrity by trading, according to the report.

"We have found that educators and influencers often use images of holidays and expensive cars to promote the trading of CFDs and the returns that can be made,” the FCA added. "This conflicts with the standardized risk warnings that are in place for CFD providers, which show the majority of clients will lose money.”

Fazzaco has learned that the FCA has continued to shut down such fraud platforms and even banned a few such brokers from offering trading services in the UK.