There are over 100 regulated stockbrokers actively trading in the UK. When unregulated firms are included, this number swells to over 1,000.
Don’t let these numbers fool you; the overwhelming majority of retail investor trades are taken by the largest regulated firms, which includes;
- Financial advisers
- Specialist share-dealing services
- Investing apps
- Online-only discount brokers
- FSCS compensation (subject to limits) if losses are experienced by clients as a result of the firm folding
- Good practices regarding ringfencing client assets from the business assets of the firm
- Minimum governance requirements (increased further if the firm is listed on a stock exchange)
- Systems of financial controls
While these in no way guarantee the safety of all of your funds, they act as layers of protection that are much needed when you consider the vast sums that clients entrust with their brokers.
So where do unregulated brokers fit into this landscape and why would an investor choose to use them?
Unregulated brokers don’t always appear that way. They may:
- False claim to be regulated by the FCA
- Impersonate a real, regulated firm
- Be regulated in a country outside of the UK or EU.
Examples include firms registered in Caribbean nations or the Far East.
Make no mistake – if the firm you are giving money to is not genuinely permitted to carry on stock brokerage business in the UK, you will benefit from little or no protection or rights of redress via the UK authorities.
Many British retail investors do make the mistake of investing with a firm under the incorrect belief that they are protected. Here’s how to spot an unregulated firm:
False claims of ‘Fully FCA Regulated’ status – check the FCA Register of firms
Copy cat or cloned firms impersonating a real regulated entity –
- Check the URL to ensure it is the official website address, and revisit through reliable sources
- Check for HTTPS:// at the front of the URL
- Be alert for typos or other unprofessional elements on the website
- Never visit a website via a direct link on an email
- Check the FCA bulletins for recent lists of firms they are aware have been ‘cloned’ in this fashion
We hope that you found this information about unregulated brokers useful. In our opinion, they are never worth the risk because the best UK stockbrokers are regulated, so there is no compelling reason to be tempted away from the protection this affords.