The popularity of online trading and the increase in investment scams have led regulators around the world to impose strict rules to regulate and license brokers and FSPs.
The Financial Sector Conduct Authority (FSCA) is the government body responsible for licensing and regulating the activities of all brokers in South Africa. To do this, the FSCA assigns a unique Financial Services Provider (FSP) number to all licensed brokers in its database.
Regardless of the size of your investment, it is important that you choose an FSCA approved broker when deciding where to trade. This is necessary as online brokers are now flooding the internet, bombarding users with tons of advertisements promoting their brands. Some go so far as to promise ridiculous bonuses and very high leverage. This gives potential readers the idea that online trading in forex and other markets is a quick path to wealth.
However, many brokers do not fully disclose the risks associated with the products they promote. In addition, many brokers who accept SA clients and promote their services to South Africans are licensed by the FSCA.
For traders based in South Africa, the importance of trading with an FSCA-regulated broker cannot be overstated. If you are a retail trader, you need to check if your broker has a valid FSP number and is licensed to offer the products you want to trade. This will protect you from fraudulent brokers.
Why You Should Only Trade Through an FSCA Approved Broker
#1. Regulatory protection
The regulations set out the framework within which brokers must follow and comply with the laws and standards set by the Financial Service Conduct Authority (FSCA). This also ensures that they do not engage in any illegal practices.
Through regulation, investors’ interests are protected. In case you are trading with an unlicensed broker, you are powerless if he cheats you or engages in any fraudulent activity. If a licensed broker violates FSCA rules, they will face disciplinary action which may include a ban.
Also, it is possible to recover your lost funds in the event that the regulated broker engages in activities not authorized by the regulator.
#2. Transparency in transactions
FSCA licensed brokers and PSPs are required to operate in a manner where they must 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 monthly, quarterly or annual financial reports. This practice gives traders and the general public the assurance that the activities and financial situation of the brokerage firm are regularly monitored.
If you are dealing with an unlicensed offshore broker/broker, who is not required to follow regulatory rules in South Africa, then it is impossible to know the financial adequacy of that broker. It is possible that such a broker is a scammer.
#3. Merchant fund protection
Each investor must ensure that their investments benefit from solid protection, regardless of the size of their capital. An unlicensed broker could run away with the investor’s money and simply refuse to issue withdrawals.
This is one of the reasons why you should trade with a licensed broker, as it protects you from the fraudulent activities that have become common lately.
Since licensed brokers cannot afford to lose their license, they are required to act in a way that ensures client funds are protected. A licensed broker is not permitted to use a client’s investment for any purpose other than that for which it is intended.
Indeed, policies set by regulators prohibit brokers from using clients’ investments for their own profit. This way, your funds, profits and investments remain protected.
#4. Recourse in the event of a dispute / Customer support
In the event that you have a problem or issue with your broker and need to contact them, an FSCA-licensed broker generally provides customers and customers with various means of communication. This includes emails, local SA phone numbers, live chat and in some cases you can visit their local office in South Africa. This is an important reason why you should only trade with a broker with an FSP number, as it ensures that you have someone to talk to if there is a problem with your trading account.
Additionally, as part of their customer support system, licensed brokers offer tutorials and other educational services to new investors to equip them with the knowledge and skills to thrive and succeed in the financial market.
#5. Fraud Protection
If an FSCA-licensed broker gets involved in any form of financial malfeasance, they will definitely receive the FSCA gavel.
The following are examples of such financial practices that the FSCA protects you against; tampering with the trading platform, manipulating prices and trading positions in their favor, seizing client funds for no good reason, etc.
Safe Forex Brokers AG discovered in their research that over 40 foreign and offshore regulated forex and CFD brokers accept SA clients. If you trade with one of these brokers, you are exposed to counterparty risk. If such a broker turns out to be a fraud or goes bankrupt, client funds would be lost and recovery could be very difficult.
But when you trade with a licensed broker, they are required to follow strict rules set by regulators. If they don’t follow them, their license can be revoked and they could also face legal action.
#6. protection of your personal data
Every organization doing business in South Africa must comply with the South African Personal Information Protection Act (POPIA).
This law requires those who obtain customer data to store it carefully and ensure that it is not disclosed. It also imposes penalties for violations of the POPIA law. An FSCA or FSP licensed broker is required to comply with this law, so they must follow strict security standards to ensure that your passwords, credit card numbers, etc. are stored securely.
Warning: do not negotiate with an unauthorized financial services provider
Online commerce has been hijacked by ill-intentioned individuals or groups. The serial fraud cases and the need to protect South African individuals wishing to invest in the financial sector necessitated the institution of the FSP number by the FSCA.
You should check with the FSCA that your broker is licensed to provide the financial services you wish to have, as licenses are granted for various financial services, not just brokerage. Indeed, it has been reported that some brokers offer services that they were not authorized to offer. You can check everything on the FSCA website www.fsca.co.za
With the information at your disposal, you can avoid unlicensed brokers or fall for investment scams.
Do your due diligence and properly check if the broker you are dealing with is licensed/licensed to offer the products you want to trade.
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