What FCA and CySEC-Regulated Brokers Offer to Forex Traders

by FX EA Review
What FCA and CySEC-Regulated Brokers Offer to Forex Traders

Trading with an appropriately licensed broker is critical for any client, particularly in a massive financial market like forex, which bad players can easily manipulate. Nowadays, the vast majority of forex brokers one comes across are regulated by the FCA CySEC or even both.

Like most things in life, brokers don’t operate in the same manner, which is primarily down to how they are overseen. Although the FCA and CySEC are highly regarded and recognized, it does help to understand what traders should expect from each when observing a broker’s services.

Overall, we can summarise CySEC as being less strict while the FCA is more so. A broker supervised by the latter is seen with more prestige due to the higher licensing cost and the UK’s prosperous economy. 

This difference is evident in the strictness between FCA and CySEC-governed brokers in forex.

What are the FCA and CySEC?

While only being founded in April 2013, the FCA (Financial Conduct Authority) oversees more than 58 000 UK-based financial service providers. This organization came to be after the dissolving of the Financial Services Authority.

Unlike its counterpart, the FCA is not government-owned. Nonetheless, it is the UK’s leading financial supervisory body continuously aiming to uphold the integrity of the financial markets within the region at a retail and wholesale level. 

Despite not being government-controlled, the FCA is a powerful body with immense authority in how derivatives are marketed, the banning of potentially misleading products, licensing fees, imposing sanctions, the freezing of assets when organizations are being investigated, and other crucial decisions.

Despite hailing from the small island country of Cyprus, CySEC (Cyprus Securities and Exchange Commission) is one of the biggest government-owned regulatory agencies for retail forex and binary options brokers globally. 

The agency aims to make Cyprus’ financial market a reliable and attractive investment destination for international firms. CySEC was established in 2001, becoming a member state of the European Union three years afterward. This means the supervisory agency has significant oversight in the EU markets.

Like most regulatory bodies, CySEC has several duties to fulfill, such as granting and suspending operating licenses, ensuring entities under its wing are compliant with particular laws, imposing the necessary disciplinary measures, and more.

Segregated account differences

A segregated account in forex is a company account separating client deposits from its own money. Account segregation is critical for brokers as it prevents any unnecessary utilization of customer funds for reasons other than meeting possible margin requirements or withdrawal transactions.

In other words, with a segregated account, a broker shouldn’t use money from their customers for their own purposes. Moreover, if a company were to face any possible liquidation issues, it could return its clients’ funds.

Ultimately, the FCA mandates their brokers to have segregated accounts. With CySEC, this is not a compulsory requirement, and it might perhaps be one of the reasons some CySEC brokers have withdrawal issues (covered later). 

Brokers with segregated accounts are perceived more favorably. Clients consider this feature as fostering safety and transparency. 

Leverage differences

Overall, traders receive more leverage with CySEC brokers than they do with the FCA. In 2018, the European Securities and Market Authority (ESMA) implemented a few significant laws to provide a more risk-centric trading environment, one of which was drastically reducing the leverage offered to clients in many instruments.

FCA brokers are affected by the new rules created by ESMA. For starters, most FCA brokers provide the maximum leverage of 1:20 for non-major forex pairs (markets not US-based) and 1:30 leverage for major forex pairs (markets that are US-based).

On the other hand, CySEC brokers have no restrictions and can offer leverage well above 1:500. Therefore, if you’re a UK resident, you will need to be a lot more capitalized to trade currencies. 

Risk warning differences

Another distinction between FCA and CySEC brokerages is the risk disclaimers. ESMA also stipulated that FCA brokers needed to display standardized risk warnings on their websites with specific reference to the actual percentage of traders who’ve lost money with them. 

You will rarely find such cautions with a CySEC broker.

Withdrawal differences

Generally, FCA brokers have faster withdrawal times than their counterparts. The regulation states that the brokers aren’t allowed to delay or block withdrawals, assuming a client has met the necessary terms and conditions beforehand.

On the other hand, you may hear some traders complaining about delays with their withdrawals from primarily CySEC brokers, and this is because they are not mandated to facilitate these quickly. 

Incentive differences

Another influential rule in ESMA’s 2018 interventions was a ‘restriction on the incentives offered to trade CFDs.’ More specifically, this rule meant FCA brokers couldn’t provide any bonuses or promotions for new or existing clients. 

These include things like no-deposit bonuses and first-time deposit bonuses/credits. CySEC brokers still provide these promotions, which have received a mixed reception over the years.

For the most part, bonuses don’t offer traders any real benefits because of the many terms and conditions to respect. Therefore, regardless of the broker you choose, one is often better off trading with whatever capital they have without any restrictions.

Final word

Let’s summarise below what to expect from FCA and CySEC brokers as a forex trader. 

  • FCA brokers must have segregated accounts; with CySEC brokers, this is optional.
  • You can expect lower leverage as a UK client with an FCA broker, while this is much higher with a CySEC broker.
  • Risk warnings are mandatory with FCA brokers, while they are not with CySEC brokers.
  • Some CySEC brokerages have a reputation for delayed withdrawals, while FCA brokers are quicker.
  • You can expect bonuses and promotions with CySEC-supervised firms and none with FCA-supervised brokers.

So, you may be wondering, does it matter? Ultimately, the services of brokers regulated by each agency are relatively impeccable as these bodies have continuously overseen the vast majority of brokerages. 

Furthermore, most reputable providers will have licenses from multiple watchdogs, including both the FCA and CySEC.

Of course, some differences here and there would be significant to some clients and not to others. It’s better to judge the trading services on a broker-by-broker basis rather than whether a certain regulator licenses it or not.

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