UK Stockbroker News Bulletin – December 2022

The Financial Expert UK Stockbroker News Bulletin is a round-up of the breaking stockbroker news, trends and press releases about the UK brokerage industry, such as:

  • New entrants looking to take a foothold in the UK market
  • Notice of firms exiting the market
  • New products & services offered to UK clients
  • Changes in the rankings of firms
  • Notable changes in the regulation of stockbrokers

Simplified financial advice regime

On 30 November, the FCA published plans that could see it create a new, simplified regulatory regime for financial advice. 

The target of such advice would be the millions of UK savers that have significant sums stashed away in cash. These pots earn lower returns over the long run compared to those who invest in a portfolio of equities, bonds and so on. The recent bout of high inflation will disproportionately affect those in cash over the coming years, meaning that this consultation has hit the press at a key moment for British savers. 

The UK’s financial watchdog has identified that the burden of rules surrounding the provision of independent financial advice has increased its cost to the point where a significant ‘gap’ exists between those who need advice and those who are prepared to pay for it.

Proposals being mooted under the scheme could include advice fees being charged across a longer time horizon rather than being levied as an upfront fee.

The plan is for such simplified advice to be restricted to core investments such as stocks & shares and corporate bonds. Constraining advisors to these products, in theory, will reduce the risks of a misselling scandal further down the road by taking adventurous products like derivatives, crypto and spot commodities off the table. 

Reaction from stockbrokers has been varied, with Interactive Investor’s Richard Wilson labelling the move as the industry’s ‘watershed moment’, while Tom Selby at AJ Bell strikes a more sceptical tone. Tom notes that in 2011 when the FCA tried to introduce a similar idea, firms were put off by the fact that whether they give simplified or full advice, they expose themselves to the same level of liability should things go wrong. Without measures to address this, he suspects that the FCA will struggle to generate enough enthusiasm at high street banks and building societies, who he perceives are the intended beneficiaries of a thinner rulebook. 

Dear CEO Letter issued by FCA to Contract For Difference firms

On 1 December, the FCA delivered a sternly-worded letter to the regulated firms that offer CFDs or primarily market these high-risk products. Such letters land on the desk of both the best CFD brokers in the industry and the unscrupulous firms that bring it into disrepute. 

The supervisory communication brought the following risks and items to the attention of firms:

The FCA considers that a “significant minority of firms in the sector operate business models that cause significant consumer harm” by exhibiting three poor behaviours:

  • Scam/churn activities – The FCA monitors firms who onboard clients through misleading or outright fraudulent advertising, then pressure the client to overtrade. In combination with excessive fees, CFD firms generate revenue almost exclusively to the detriment of their clients. 

Also under the spotlight are firms providing of unauthorised investment advice to clients. This can sometimes be branded as ‘trading signals’ or ‘research’ but can overstep the line. 

The FCA also called out firms that refuse to process withdrawals, which may culminate in an unfavourable settlement for the client, coupled with a Non-Disclosure Agreement that prohibits them from sharing their negative experiences with others. 

  • Circumvention of FCA rules – Some trading firms have been sidestepping CFD rules by shifting clients to offshore third-country entities that have been providing wholly unauthorised CFD products. Another loophole being exploited sees firms encouraging clients to describe themselves as elective professionals in a bid to bypass regulations that only apply to retail clients. In many cases, the FCA observes, such elections are ‘inappropriate’ and are sometimes financially incentivised by the firm.
  • Affiliate marketers/ introducers – The FCA admonishes firms that leverage unauthorised affiliates, who are increasingly pitching themselves as ‘influencers’ and have been seen to provide advice on how to trade forex that could be interpreted as investment advice, a regulated activity. 

Although the letter states that the FCA believes that many CFD brokers are acting responsibly, it carefully notes that its message is intended both for the small and ‘listed’ firms. This wording appears to be intended to alert the few large firms that dominate the UK industry that they should not dismiss the issues raised by the letter as only applying to rivals they perceive as the wild west of the industry.

Orca closure final update

As we reported in an earlier bulletin, the lightweight brokerage app Orca has shuttered to new and existing clients. All positions have now been liquidated and cash has been returned to clients in an orderly fashion.

Final statements were emailed to UK clients on 1 December, notifying clients that Orca App Ltd has been wound down. A check on Companies House reveals that the company has an active proposal to strike-off that is currently in progress. It may never file financial statements for the year ended 31 December 2021.

Orca Companies House

Orca’s closure serves as a poignant reminder of the increasing levels of competition between the full list of UK stockbrokers, which includes a mixture of traditional incumbents, bank profit centres and VC-backed fintech. 

Orca CEO Iain Niblock, who briefly since took the helm of Money Dashboard and is now Head of Product at ClearScore, spoke of the ‘bitter experience’ of experiencing failure in a LinkedIn post announcing the closure back in 2020, which he held in contrast with the culture of celebrating failure within the start-up world. 

Ex-clients of Orca App Ltd are asked to direct any queries to RiskSave Technologies Ltd at [email protected].

Awards season is almost upon us

As 2022 draws to a close, we now look to what the 2023 calendar year may bring. 

Chief in our minds is Financial Expert’s stockbroker awards and our site-wide rankings which impact our coverage of the best FCA regulated brokers. Look out for announcements at the turn of the year to discover whether eToro has held onto the top spot as the best broker.

We will continue to lead the way with our truly comprehensive broker listings, which contrast favourably with the shortlists of our competitors. Whether an institution has a formal affiliate relationship with Financial Expert or not, they’ll be welcomed onto our popular page, which currently lists 84 different firms.