What FCA Authorisation Means for Client Funds

Choosing where to trade involves more than comparing spreads and platforms. Before any of those considerations, there is a more fundamental question: what happens to the money in the account if something goes wrong with the broker?

Most traders assume the answer is obvious. In practice, the level of protection a client receives depends entirely on whether the firm they are trading with is properly authorised, what that authorisation requires the firm to do with client money, and what recourse exists if those requirements are breached. FCA authorisation is not a formality or a marketing badge. It is a specific regulatory framework that imposes real obligations on authorised firms and provides real protections to clients.

This article explains what FCA authorisation requires of a regulated broker, what those requirements mean for client fund safety, and what a trader should verify before depositing with any platform operating in the UK market.

What the FCA Is and What It Does

The Financial Conduct Authority (FCA) is the UK’s financial services regulator. It authorises and supervises firms serving UK retail and professional clients, sets conduct standards, and enforces compliance with those standards.

A firm that wishes to offer CFD trading, spread betting, or related financial services to UK clients must apply to the FCA for authorisation, demonstrate that it meets the FCA’s threshold conditions, and maintain ongoing compliance with FCA rules. Those threshold conditions—set out in legislation—cover areas such as minimum capital requirements, governance standards, management fitness and propriety, and the firm’s ability to conduct business in a sound and orderly manner.

Carrying on regulated activities in the UK without FCA authorisation is a criminal offence. The FCA maintains a public register of authorised firms and individuals at register.fca.org.uk. Checking a firm’s status on that register before depositing funds is the most basic due diligence step available to any UK trader. It would have prevented losses in many cases involving fraudulent or unauthorised firms.

Client Money Segregation: The Core Protection

One of the most important protections the FCA requires authorised firms to implement is client money segregation. Under the FCA’s Client Assets Sourcebook (CASS), firms must hold client money in accounts that are legally and operationally separate from the firm’s own funds.

This requirement means that if an FCA-authorised broker becomes insolvent, client money is not treated as part of the firm’s assets available to its general creditors, provided the client money rules have been properly followed. Instead, the money is held for clients and must be distributed in accordance with the CASS rules. Clients of an insolvent FCA-authorised firm therefore stand in a fundamentally different position to general creditors: their money is ring-fenced rather than forming part of the estate available for distribution.

In practice, firms must hold client money in trust accounts with approved banks, perform regular (typically daily) reconciliations between those accounts and their internal records, and arrange periodic independent audits of their client money arrangements. Any shortfall between the firm’s records and the amount held in trust must be made good by the firm from its own resources.

For a trader, the significance is straightforward. A deposit made with an FCA-authorised firm that properly maintains client money segregation is not a loan to the broker. The firm is generally prohibited from using those funds for its own purposes. The money is held on trust and must be capable of being returned to the client in accordance with applicable rules and account terms.

The Financial Services Compensation Scheme

In addition to the protections provided by client money segregation, retail clients of FCA-authorised investment firms are generally covered by the Financial Services Compensation Scheme (FSCS) up to a limit of £85,000 per eligible claimant per firm.

The FSCS provides compensation where an FCA-authorised firm is unable to meet its obligations to clients, typically due to insolvency. If an authorised firm becomes insolvent and client money segregation has been properly maintained, clients should receive their segregated funds through the insolvency process without needing to rely on the FSCS. The scheme becomes relevant where client money or assets cannot be fully returned to clients. This may occur where the firm has misused client money, failed to maintain proper records, or where the insolvency reveals a shortfall between what clients are owed and what is actually held in segregated accounts.

In those circumstances, the FSCS covers eligible claims up to £85,000 per client. Claims above that threshold may be partially recoverable through the insolvency process but are not covered by FSCS compensation.

Professional clients may have more limited or no eligibility for FSCS compensation, depending on the nature of the claim. This is one of the material trade-offs of professional client classification, which exchanges certain regulatory protections applicable to retail clients for access to higher leverage and other commercial terms. Any trader considering electing for professional status should factor the potential loss of FSCS protection into that decision.

Best Execution: The FCA’s Standards for Trade Handling

FCA authorisation governs not only how client money is held, but also how firms handle client orders during execution.

The FCA’s best execution requirement, derived from MiFID II and incorporated into UK regulation post-Brexit, requires authorised firms to take all sufficient steps to obtain the best possible result for clients when executing orders. Best execution is assessed across multiple factors, including price, costs, speed, likelihood of execution and settlement, size, and the nature of the order. For most retail clients trading in liquid instruments, price and costs (together referred to as “total consideration”) are typically the most important factors.

An authorised firm must maintain and implement a written order execution policy that explains how it achieves best execution for different types of client orders and instruments. That policy must be reviewed at least annually and updated when material changes occur. The firm must be able to demonstrate to the FCA, on request, that its execution arrangements deliver best execution in practice, not merely in documented policy.

For traders evaluating a broker’s execution quality, the existence and content of the order execution policy provide a starting point for understanding how the firm handles orders, what factors it prioritises, and under what circumstances execution may differ from its standard approach. The policy is a public document that authorised firms are required to make available to clients.

Capital Requirements and What They Signal

FCA-authorised investment firms must hold minimum levels of regulatory capital, calculated according to prudential rules that reflect the nature, scale, and complexity of their business. The capital requirement serves as a buffer against operational losses and provides some assurance that the firm can continue to meet its obligations during periods of financial stress.

For retail CFD and spread betting providers, the minimum capital requirement under the FCA’s prudential framework is typically the higher of a fixed minimum requirement and a variable requirement linked to the firm’s activities and risk profile. Firms with larger balance sheets, more complex risk exposures, or higher operational risk are required to hold proportionately more capital.

The capital requirement is not a guarantee that a firm will never become insolvent. Firms can still fail despite these requirements. The requirement does, however, ensure that a capital buffer must be absorbed before the firm becomes unable to meet its obligations, and that the FCA monitors firms’ capital adequacy on an ongoing basis. A firm that falls below its capital requirement is subject to supervisory intervention and, in more serious cases, formal regulatory action.

What to Check Before Depositing

The protections described in this article apply to FCA-authorised firms that are actively maintaining their obligations. Authorisation is a point-in-time assessment; ongoing compliance is what provides real protection to clients.

Before depositing with any firm offering trading services to UK clients, the following checks can be completed in a few minutes and address the most basic level of due diligence:

Check the FCA Register: Verify that the firm is listed as currently authorised, not merely applied for authorisation or previously authorised. The register displays the firm’s authorisation status, the regulated activities it is permitted to carry out, and any restrictions or conditions attached to its authorisation. A firm that claims FCA authorisation but does not appear on the register, or appears with a different status, is a clear warning signal.

Check the Firm Type: The register distinguishes between different types of authorised firms. A firm authorised as an appointed representative is not directly authorised; it operates under the regulatory umbrella of a principal firm. While the principal is responsible for regulatory compliance, this structure differs from that of a directly authorised firm and is relevant when assessing the overall protection framework.

Review the Client Money Documentation: FCA-authorised firms are required to make their client money and asset terms available to clients. Reviewing how the firm describes its client money arrangements, which banks it uses for segregation, and its reconciliation and audit procedures provides an indication of how seriously segregation obligations are implemented in practice.

Read the Order Execution Policy: The execution policy describes how the firm handles orders across different instruments and market conditions. It is a key document for understanding differences between brokers that may otherwise appear similar in terms of pricing, but operate under different execution frameworks.

Regulated Does Not Mean Risk-Free

FCA authorisation provides meaningful protections that are absent for unregulated firms. Understanding what those protections cover is as important as knowing that they exist.

Client money segregation protects against broker insolvency. It does not protect against trading losses. Losses resulting from adverse market movements are not recoverable through any regulatory mechanism, as they do not arise from any failure by the broker to meet its obligations. FCA regulation governs how the firm operates, not whether markets move in the trader’s favour.

Best execution requirements impose obligations on how orders are handled. They do not guarantee that every trade will be filled at the precise price displayed. Market conditions, execution infrastructure, and the dynamics of fast-moving markets all affect fill quality within the bounds of best execution obligations, as covered in detail in [Execution Quality: The Gap Between the Price You Aim For and the Price You Get].

The FSCS limit of £85,000 per client means that clients with balances above that threshold carry residual risk above the compensation limit. For clients depositing amounts above this level, the quality of the firm’s client money segregation arrangements becomes the primary protection, not the FSCS backstop.

The Bottom Line

FCA authorisation is the baseline requirement for firms offering leveraged trading services to UK retail clients. The obligations it imposes—client money segregation, FSCS coverage, best execution requirements, and ongoing capital adequacy—provide a framework of protection that unregulated firms do not offer and cannot replicate.

Verifying a firm’s authorisation status before depositing, understanding what those protections cover—and what they do not—and reviewing the firm’s public regulatory documentation are the practical steps that translate this knowledge into due diligence. The regulatory framework exists to protect traders. Using it requires knowing it is there and knowing what to look for.

The final article in this series covers [what FSRA authorisation means for client funds] in the UAE: the equivalent framework operated by the Financial Services Regulatory Authority (FSRA) in Abu Dhabi, the protections it provides to clients in that jurisdiction, and what traders based in or accessing markets through the UAE should verify before committing capital.

Lokendra Sharma is Head of Compliance at Lunaro Financial Services, London. He oversees the firm’s regulatory obligations under FCA authorisation and is responsible for ensuring that client money, best execution, and conduct standards are maintained across all UK operations.

Disclaimer:

This material is a marketing communication and is provided for general information and educational purposes only. It does not take into account your personal circumstances, objectives or needs. Any opinions are those of the author at the time of writing and may change without notice. Nothing in this material constitutes (or should be construed as) financial, investment, legal, regulatory or tax advice, or a recommendation to engage in any investment activity. You should not rely on this material when making investment or trading decisions.