Unregulated Brokers First Signs

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“If you think compliance is expensive, try non-compliance” – Paul McNutty, Former U.S. Deputy Attorney General

This rough message from the former US Deputy Attorney General, Paul McNutty should be a real wake up call for all the brokers out there that are trying to evade regulation, in search of greater profit or for various other reasons.

And in all fairness, to paraphrase McNutty, compliance does come with a great cost – that of having to be fair, honest and transparent in all your services and offers. Plenty of times, this way of conducting a business leads to companies losing clients, investments, or   even partners mostly because they have stricter conditions and can’t offer incentives and really high leverages.

But the real enigma here is how can you spot an unregulated broker and make the right choice, in an overserviced industry? The good news is that there are a few triggers that should get you questioning the real intentions of the broker you want to trade with.

As you might suspect, the most important detail about a broker is regulation. It is the one detail that differentiates the broker from scammers. The first thing you should do to know more about your broker’s license and regulation is to thoroughly check their website, paying greater attention to the bottom page text.

Look for a License number and the regulatory body that has issued it. Oftentimes, regulated brokers also offer a link to the regulatory body’s website, where you can find all the services the broker (or the group of companies from which this one is part of) can freely provide, as well as the countries it can service to.

Pay great attention to the fine print, as a Registration Number is not the same as a Licence Number, and many brokers try to scam traders this way. A registration number simply states that the regulatory entity acknowledges the company as existing in its jurisdiction and that it provides a certain suite of services. This, however, does not bind the company to follow the set of rules set in place by the regulator.

Stay tuned for next month’s article, that will tell you more about the main European and EEA regulatory bodies.

Another alarming sign should be receiving any kind of promise of gain or profit. Since immediately after you register with your broker, you’ll start receiving calls and messages, mostly from your Account Manager/ Sales Rep, make sure to carefully listen to their pitch. Should these make any kind of promise of successful investment leading to gains or profits, you should reconsider trading with the company, and ask for further details regarding the regulator.

Transparency should be ensured for all the broker’s information, offers, services. Should you at any point get mixed information, or spot any attempt from the broker/ Account Manager to conceal information, make sure to double check the honesty of your broker.

One emergency solution remains to contact the regulatory body, that will be able to give you all the necessary information about the broker, or start an investigation regarding it.

Are you ready to trade?

Your capital is at risk

Chris Lee

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