Why The FCA’s Clampdown In 2021 Is Good News For Traders

The Financial Conduct Authority, the UK’s financial market regulator and one of the world’s leading guardians of investment activity, has posted its year-end report. It suggests that the risks to retail investors, at least over the last 12 months, may not have been found in the obvious places.

Anyone considering opening a broker account needs to follow the basic guidelines to avoid being scammed. The risk of losing all your money is a very real one, but the FCA’s report points to other areas of concern.

Increased FCA Fines In 2021

In 2021, FCA fines increased nearly four-fold to £577m. The largest contributors weren’t rogue brokers but high street banks. This isn’t necessarily great news for traders, who obviously have high street bank accounts as well as broker accounts, but it points to risks in the broker sector being managed relatively well.

The surge in fines is boosted by a whopping fine of £265m issued to NatWest after it admitted it had failed to prevent money laundering. In that case, a gang deposited hundreds of millions of pounds in cash, a lot of it carried into branches in bin bags at around 50 branches of NatWest. At least one branch processed more than $40m.

Another banking giant, HSBC Bank, was also fined £63.9m for failings in its anti-money laundering processes. In that instance, the automated processes it used to monitor transactions malfunctioned.

Source: Bank of England

The net result is that FCA fines have spiked to their highest value in six years. The number of fines issued increased 57% on a year-on-year basis, but it is clear the size of the penalties issued has also gone up to the next level.

It’s worth noting that a lot of the penalties imposed are not just in the form of fines. Some of the culprits have suffered ‘withdrawals of authorisation’ and ‘variations of permission’ imposed. In short, their wings have been clipped by a regulator unhappy with their performance.

What Are The Broker Risks in 2022?

In terms of online brokers themselves, it’s been a relatively positive year in terms of user experience. The relative stability of the financial markets meant few brokers were placed under too much stress in terms of their operational capabilities. But the more dramatic events of 2020 were also associated with the overall healthy broker-client relationship.

With good online brokers having passed the tests placed on them over the last 24 months, investors can have some confidence going in to 2022. Market risk – the chance of making the wrong call on a position – can’t be avoided, but at least it looks like brokers and retail investors have managed to ensure operational risk has been mitigated as much as possible.

Crowdsourcing information about scam brokers can help others avoid falling into the traps set by disreputable brokers and you can share your experiences here. If you want to know more about this particular topic or have been scammed by a fraudulent broker, you can also contact us at [email protected]

About the author: Justin Freeman

Justin is an active trader with more than 20-years’ industry experience of working for big banks and hedge funds. He has an inside knowledge of how the financial markets work, thanks to roles including trader on a $750m Event-Arbitrage desk and CRO and COO of hedge funds running a variety of strategies. From stat-arb and trend-following CTA to fixed-income relative value. Firm’s he has worked at include big banks like Citi, and prominent hedge funds including D. E. Shaw and Millennium Capital Management.

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