The popularity of online trading & the rise in investing scams has caused regulators all over the world to impose strict rules to regulate and license brokers & FSPs.
The Financial Sector Conduct Authority (FSCA) is the government body responsible for licensing and regulating the activities of all brokers in South Africa. The FSCA does this by assigning a unique Financial Service Provider (FSP) number to all licensed brokers on its database.
Irrespective of the size of your investment, it is important you choose an FSCA licensed broker when deciding on where to trade. This is necessary because online brokers now throng the internet, bombarding users with tons of ads promoting their brands. Some go as far as promising ludicrous bonuses and extra high leverage. This gives potential readers the idea that online trading in forex & other markets is a quick path to wealth.
However, many brokers don’t fully disclose the risks associated with the products they are promoting. Also, many of the brokers that accept clients from SA & promote their services to South Africans are licensed by the FSCA.
For SA based traders, the importance of trading with an FSCA regulated broker cannot be over-emphasized. If you are a retail trader then you must check if your broker has a valid FSP number & if it is authorized to offer the products which you want to trade. This will protect you from scam brokerages.
Why You Should Only Trade via a FSCA Licensed Broker
#1. Regulatory Protection
Regulation sets the framework for brokers to follow and abide by the laws and standards set by Financial Service Conduct Authority (FSCA). It also ensures they do not engage in any illegal practice.
Through regulation, the interests of investors are protected. In the event that you trade with an unlicensed broker, you are helpless if they cheat you or carry out any fraudulent activity. If a licensed broker breaks any rules of the FSCA, it will face disciplinary measures which might include a ban.
Also, it is possible to get recovery of your lost funds in an event the regulated broker engages in any activities that are not allowed by the Regulator.
#2. Transparency in dealing
FSCA licensed brokers & FSPs are required to operate in a manner where they have to have their client’s interest in mind and operate honestly without manipulating the markets to their advantage.
In most cases, a licensed broker is required to submit financial reports either monthly, quarterly or yearly. This practice gives traders and the general public assurance that the activities and financial standing of the brokerage firm are being regularly monitored.
If you are dealing with an offshore unlicensed dealer/broker, who is not obligated to follow any regulatory rules in SA, then it is impossible to know the financial adequacy of that broker. It is possible that such a broker is a scammer.
#3. Protection of Trader’s Fund
Every investor has to ensure there is strong protection for their investments irrespective of their capital size. An unlicensed broker could run away with the investor’s money & simply refuse to issue withdrawals.
This is one of the reasons you should trade with a licensed broker as it protects you against fraudulent activities that have become common in recent times.
Since licensed brokers cannot afford to lose their license, they are bound to act in a way that ensures clients’ funds are protected. A licensed broker is not allowed to use a client’s investment for another purpose other than what they are meant for.
This is because the policies set by the regulators forbid brokers from using clients’ investments for their own gain. This way, your funds, profit and investment stay protected.
#4. Recourse in the Event of a Dispute/ Customer Support
In the event you have any problem or issue with your broker and there is need for you to contact them, an FSCA licensed broker usually provides clients and customers with diverse mediums of communication. This includes emails, local S.A. phone numbers, live chat and in some cases you can visit their local office in South Africa. This is one important reason you should only trade with a broker with an FSP number as it ensures you have someone to talk to when having problems with your trading account.
Also, as part of their customer support system, licensed brokers offer tutorials and other educational services to new investors to equip them with knowledge and skills needed to thrive and be successful in the financial market.
#5. Protection from Fraud
Should an FSCA licensed broker get involved in any form of financial malpractice, it will certainly receive the hammer from the FSCA.
Examples of such financial practices the FSCA protects you from include; tampering with the trading platform, manipulating the prices and trading positions to their favor, seizing client’s funds without a cogent reason etc.
Safe Forex Brokers SA found out in their research that 40+ foreign & offshore regulated forex & CFD brokers accept clients from SA. If you are trading with any of these brokers, then you are exposed to the counterparty risk. If such a broker turns out to be a fraud, or goes bankrupt then the clients’ funds would be lost, and recovery can be very difficult.
But when you trade with a licensed broker, they are required to follow the strict rules set by the regulators. If they don’t follow them, then their license can be revoked & they could also face legal action.
#6. Protection of your personal data
Every organization doing business in South Africa has to comply with the South African Protection of Personal Information Act (POPIA).
This act mandates those who obtain customers’ data to store it carefully and ensure it is not leaked. It also imposes penalties for breach of the POPIA act. An FSCA licensed broker or FSP is bound to comply with this act, so they have to follow strict security compliances to ensure that your passwords, credit card numbers etc. are kept safe.
Caution: Don’t Trade with any Unlicensed Financial Service Provider
Online trading has been hijacked by individuals or groups with bad intentions. The serial cases of scams and the need to protect individual South Africans willing to invest in the financial sector, necessitated instituting the FSP number by the FSCA.
You must check with the FSCA that your broker is approved to provide financial services that you want to have, as licenses are granted for various financial services, and not just brokerage. This is because it has been reported some brokers offer services they were not authorized to offer. You can check for all on the FSCA website www.fsca.co.za
With the information at your disposal, you can avoid unlicensed brokers or falling for investing scams.
Do your due diligence, and properly check if the broker you are dealing with is licensed/authorized to offer the products which you want to trade.
