What to Check About Broker Licensing Before Depositing Money
While a broker might have a professional website, low spreads, and quick account opening, this does not necessarily mean that they are properly licensed. Check the broker's regulation, the legal entity holding your account, and whether the licence is for the service you intend to use. This is paramount if the broker represents customers in multiple countries.
Find the Broker’s Legal Company Name
The broker's full/legal name should be used first. The brand name does not need to be the same as the company name. Information about the name should be in the footer of the website, the terms and conditions, the account agreement, or the regulatory page.
Record the company name, registration number, licence number, and regulator(s). Don't assume that a “regulated” or “licensed” logo is the only thing to look for. A regulator logo may be replicated, and a licence number may be displayed without sufficient context.
Large broker groups can have various legal entities for various countries.
Regulator's Own Website Has a Licence Checker
The safest way to verify a licence is to check the regulator's official register. The Financial Conduct Authority (FCA), the regulator of the UK financial services industry, advises consumers to check if a firm is authorized and has permission to provide the service they are looking for, using its Firm Checker or Financial Services Register.
Users can look up the professional register of companies registered by ASIC by company name, licence number, ACN or ABN. An additional register may also include the services that a firm is licensed to supply.
When inspecting a licence, ensure:
The legal company name matches the name on the broker's document.
The licence number matches the broker's website.
The licence is not cancelled, revoked, or expired.
The information on the website and the contact information match the official register.
The licence is issued for the type of financial service being provided.
Check if the Licence Covers Your Account
A licence can be valid, but you must find out if it's relevant to you.
For example, a broker might have one regulated company for UK clients and another for international clients. If an account is opened in the name of the international entity, then the rules of the UK company will not safeguard you.
Before making a deposit, read the account-opening page. Watch for phrases like “you are contracting with,” “your account will be held by,” or “regulated by.” You will see a brand name and a legal entity named there. The legal entity is more important than the brand name at the top of the website.
Independent broker pages may also be used for examining the way in which a broker portrays itself with regard to regulation and account setup. This Alfa Forex Review, for instance, offers an overview of the broker and the regulatory information provided for it. Any licence claim should always be verified on the official register of the regulator.
Identify What the Regulator Wants
Not all licences offer the same degree of supervision. In some cases, regulators have specific regulations regarding client funds, reporting, complaints, risk warnings, and conduct of the company. Some others may have less demanding requirements.
A great place to start is to find out how client money is managed. The FCA has Client Assets rules applicable to firms holding or controlling client money. The rules dictate where the money of clients is deposited and how it is kept separate from the money of the firm.
Look on the regulator's website for rules applicable to retail trading accounts.
Review and Reflect on Key Points
Before you deposit, go over the main checks from the sections above. Use this list to make sure you have not missed any step.
Active licence: Shows the firm currently has regulatory permission
Legal entity is correct: Confirms who holds your account
Approved services: Indicates if the product offered is covered by the licence
Client money rules: How the customer's money is to be managed
Complaint process: Illustrates a place to register a dispute
Official contact details: Helps to identify fake/cloned firms
Look for Warnings, Restrictions, and Past Action
When looking for a licence, it should be more than just the word “authorised.” Check the regulator's website for warnings, restrictions, fines, or disciplinary action.
Fines, permissions, capacity to hold client funds, and other regulatory information can be provided in the FCA's Financial Services Register. Be careful because the names and information of actual authorized companies can be duplicated by clone firms.
A clone firm might appear legitimate, as the licence number could be from a legitimate firm. See if there are discrepancies between the website address, telephone number, email address, or legal name on the site and the correct information in the register.
Be wary of a broker that requests payment to a personal account, another firm, or an unrelated payment receiver. The payment information should correspond with the legal entity listed in the documentation.
Read the Client Agreement Before You Fund the Account
The client agreement indicates with whom you're working and the applicable laws. It can also cover withdrawal policies, closing accounts, fees, margin requirements, and dispute resolution.
Be very mindful of the jurisdiction of the law. If a company/country other than that advertised on the main website is mentioned as part of the agreement, check out the difference before sending any money.
Find out if the broker provides information regarding the complaints process. A regulated broker should, in most cases, provide customers with a formal complaints procedure and inform them what external body, if any, may be available to consider any complaints which have not been resolved.
A Licence Is Not a Guarantee
Regulation is important, but that doesn't make trading risk-free. Certain licensed brokers may charge a lot, have poor customer service, slow withdrawals, and products that aren't so suitable for each trader.
You can get the chance of seeing quick price swings in the Forex and CFD market. Losses are not dependent on the license of a company. The aim is to ensure the business is properly licensed to offer the services that it offers.
Conclusion
Before funding an account with a broker, confirm the legal name of the company, licence number, regulator, entity, client money guidelines, and warnings/restrictions. A badge on the broker's site is not sufficient; you must use the regulator's register. These checks will give you an idea about who will hold your money and what your account will be held under.