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The UK’s regulatory body, the Financial Conduct Authority (FCA) has reported a significant increase in complaints against brokerage firms and unauthorised trading. The information came in a statement issued on the FCA website yesterday, and is accompanied by detailed information about how to avoid scams and unregulated firms.
We have seen a sharp rise in reports from consumers about unauthorised trading and brokerage firms. These firms offer consumers the chance to trade in foreign exchange, contracts for difference, binary options and other commodities. They promise very high returns and often talk about guaranteed profits either through a managed account where the firm makes trades on the consumer’s behalf or by enabling the consumer to trade themselves using the firm’s trading platform.
As a general rule, firms offering any kind of trading in financial instruments to UK residents must be registered with and authorized by the FCA. However, the majority of the firms reported to the regulator are unknown to the FCA and often attempt to lure customers with claims that they are based in the UK, provide prestigious London addresses.
Customer complaints appear to follow a similar pattern; an unauthorized firm will recruit clients via cold-calling or online ads with a promise of very high returns. The customer’s account will then show strong profits for a period in which they are encouraged to deposit further sums. The account will then be suspended and the customer will be unable to make contact with the firm.
The FCA also reports that a number of scam operators have employed a tactic known as a ‘clone firm’ whereby a bona fide and authorized firm’s name, address, and registration number are used to gain trust. Different contact details and the address for a replica website will be provided, with fraudsters claiming that the details on the register haven’t been updated. The FCA states that its register is updated daily.
FCA Advice: Protecting Yourself Against Scams
The FCA provides some helpful guidance to avoid falling victim to unregulated or bogus firms:
To verify the identity of an authorised firm ask for their FRN and contact details, but always call them back on the switchboard number given on the Register. If there are no contact details on the Register or the firm claims they are out of date, contact our Consumer Helpline on 0800 111 6768.
You should access the Register from our website – http://www.fca.org.uk – rather than through links in emails or on the website of a firm offering you an investment. Also check the address of our website is correct and there are not subtle changes that mean it is a fake.
The regulator warns that those who access the markets through the services of an unauthorized firm are not protected by the Financial Services Compensation Scheme (FSCS) or the Financial Ombudsman Service (FOS) for any losses they may incur.
If a firm that we cover on this website is registered with the FCA, then you will find the FCA number listed under that broker’s entry on the comparison pages. However, you are then advised to carry out your own due diligence, for which the FCA (or other appropriate regulatory body) register is the only authoritative resource.
You should also note that many large global brokerage firms operate through various subdivisions, each registered and authorized to serve clients in specific regions or countries. Each division typically has its own website, and will often block access from IP addresses outside of the jurisdictions in which it is licensed to operate.
Financial Derivatives in the UK
In addition to outright scams, the FCA handles and attempts to resolve complaints regarding authorized firms. FCA complaints about the firms on its register are far less common.
The United Kingdom supports one of the world’s strongest markets in over-the-counter derivatives, which include Contracts for Difference (CFDs) and Financial Spread Bets (which function in a similar way to CFDs and offer the possibility of tax free profits), and Binary Options. Because these products do not trade on a centralized exchange and the broker/provider is often the counter party to a trade, over the counter markets lack the two way auction process that determines fair value; this can make them difficult for regulators to police because prices are effectively determined by the broker.