Regulation and Where Your Money Sits

A broker's homepage lists four or five regulators. Your account is with exactly one legal company, under exactly one of them, and it is frequently not the impressive one in the list. Finding out which takes about five minutes and decides what happens to your deposit if the firm fails.

Brand versus legal entity

The name on the website is a brand. Underneath it sits a group of separate companies, each licensed in a different place, each with its own rules, leverage caps and protections.

A typical structure looks like this:

Now note which one you would be signed up to. Someone outside the UK, the EU and Australia who wanted the high leverage they saw advertised is with the bottom row. The FCA licence at the top is real, and it is not theirs.

How to check, in about five minutes

1. Open the client agreement you accepted — not the homepage. The first page names a company.
2. Find the registration number in the site footer, next to that company name.
3. Search that number on the regulator's own register, not on the broker's site. The regulator's page will confirm the company name, the licence status and what it is licensed to do.
4. Check the deposit page. The country your money is sent to is another strong hint about which entity holds it.

What a regulator requires

Licences vary enormously. A serious regime generally imposes some combination of:

• Minimum capital, so the firm has a buffer of its own money.
• Segregation of client funds — covered in its own section below.
• Audited reporting, so the numbers are checked by someone outside the firm.
• Leverage caps and negative balance protection for retail clients.
• Limits on marketing, including bans on bonuses tied to deposits.
• A complaints route: an ombudsman or equivalent that can rule against the firm.

A light-touch offshore licence may require a registration fee, a local office address and very little else. It is still a licence. It is not the same product, and the word on the homepage is identical in both cases.

Segregated client funds

Segregation means client money is held in bank accounts separate from the firm's own operating money, and cannot be used to pay the firm's staff, rent or debts.

It matters at exactly one moment: insolvency. If client funds were properly segregated, they are not part of the estate available to the failed firm's creditors, and administrators return them to clients. If they were mixed with company money, you are an unsecured creditor standing in a queue.

A compensation scheme is the separate, second layer: a fund that pays out, up to a cap, when segregated money is still missing or short. The FSCS in the UK and the ICF in Cyprus are the two most often cited, at £85,000 and €20,000 respectively. Most offshore regimes have no such fund at all.

The limits of protection

Even the strictest licence covers a narrower set of things than most people assume. What it does not do:

What it does do is narrow but valuable: it makes the firm's failure survivable, gives you somewhere to complain that can actually compel an answer, and forces the disclosure that lets you check any of the rest.

So treat regulation as the floor of your due diligence and not the whole of it. A licensed broker can still be an expensive, badly executing, slow-to-withdraw broker — and those are the failures you are far more likely to meet than insolvency. Testing for them is the next lesson.