Brief comparison of UK FCA vs ASIC regulations results in several similarities and differences. You need to know these before choosing your brokers.
FCA forex brokers are famed as some of the best in the industry. But, how do the UK-based FCA compare against ASIC which is equally popular in Asia and Australia? Which forex regulator is more reliable and trusted? Let's learn what it means for forex brokers to have FCA and ASIC licenses.
Brief Comparison of UK FCA vs ASIC Regulations
UK Financial Conduct Authority (FCA) is known for its stringent laws and regulations that ensure transparency, security, and fairness in all dealings. Therefore, FCA-licensed forex brokers are generally considered trustworthy. But, what does it mean to be an FCA-licensed forex broker?
- The company has fulfilled FCA's minimum capital requirement. A dealer's license that allows the company to run a "market maker" business needs EUR730,000. An intermediary license where the company could facilitate STP execution needs EUR125,000. The cheapest is a restricted broker license in which the company is not allowed to hold client funds, as it only needs EUR50,000.
- FCA will monitor the company continuously to ensure the segregation of client funds, monthly report and audit, efficient management including AML and KYC procedures, and proper risk disclosure for clients.
- FCA-licensed forex brokers are prohibited from manipulative trade practices, such as entering into positions against their clients. Brokers also should not make unrealistic promises or offering monetary benefits to encourage clients to take risky trading decisions. Any violation would invoke a harsh penalty.
- FCA-licensed forex brokers should not offer extreme leverage. Since mid-2019, FCA requires brokers to limit leverage on CFD trading between 30:1 and 2:1.
Compared to UK FCA, Australian Securities and Investment Commission (ASIC) is relatively lax. However, the leading Antipodean forex regulator is increasingly stringent in its licensing and supervision. Here's what it means to be an ASIC-licensed forex broker currently:
- All ASIC-licensed forex brokers are required to hold at least AUD1 million in operating capital.
- Similar to FCA, ASIC will monitor the company continuously to ensure segregation of client funds, periodical report and audit, efficient management including AML and KYC procedures, and proper risk disclosure for clients.
- ASIC Forex brokers are not allowed to have any conflict of interest with their customers. This is the reason why Australian Forex brokers usually offer direct market access through ECN or STP facilities.
- ASIC allows comparatively higher leverage for forex and CFD trading. The current protocol allows leverage up to 1:500.
At first glance, the two regulators have equally stringent rules. However, there is one edge that only FCA-licenses have.
FCA also requires every licensed company to join the UK Financial Services Compensation Scheme that would provide protection for consumers in case of bankruptcy or financial failure. FSCS protects client's money up to GBP85,000 for all companies that are authorized by the FCA. The fund protection extends for both UK and non-UK residents. ASIC has no such requirement yet.
Which Forex Regulator is More Reliable?
FCA and ASIC are equally reliable as far as regulatory oversight goes. But there are differences that may influence your choices. For example, high leverage is usually preferred by beginner traders and risk-seekers. This is the reason why lots of Asian traders prefer ASIC-regulated entities. Contrarily, traders who are looking for better fund safety may seek FCA-licensed forex brokers.
Some popular representatives of ASIC-licensed forex brokers are Pepperstone, IC Markets, and ThinkMarkets. They generally offer ECN and/or STP-based execution with leverages up to 1:500. While FCA-licensed forex brokers vary widely, starting from stellar institutional brokers such as Gain Capital up to the dubious ones such as FX Giants. There are also forex brokers that own both ASIC and UK FCA licenses, such as IG Group. You certainly have to research further in order to ensure each broker's trustworthiness, instead of merely relying on their regulator's prestige.
The best option is for you to register with forex brokers that are registered in your own country. But if you are not a UK or Australian resident, then you should do your homework well. Be sure to check each forex broker's features, trading facilities, ease of payments, and track records. Better yet, explore online forums to discover what their clients said about their services. Don't rush to deposit your money, even though they may already have FCA or ASIC licenses.