FDIC and FSA

1. FDIC (Federal Deposit Insurance Corporation)
2. FSA (United Kingdom Financial Services Authority)

1. What is the main differences between them? (Except that FDIC is for US and FSA is UK..)

2. If my broker is telling me that the bank they work with is FSA insured and my account balance is not over the FSA limit, Can I be 100% sure that my money is safe?

3. Same question for brokers that their bank is FDIC insured.

4. Some brokers are saying, "Forex trading account's are never FDIC or FSA insured, Only equities account's are. But your money is safe with us, Cause if we will go down, Your money is safe because we have it in a segregates account". Is this true or false?

Thanks.

The FSA is the financial services authority. The FDIC is not an authority, it's merely an insurer. The FSA is more analogous to the SEC.


I do not know any of the specifics regarding the FSA or it's depositor insurance offerings. I don't see any mention of it on the website tho, and I'm not sure they offer any at all.

The UK however does have "FSCS" which might be comparable to the FDIC. I don't know their specifics either, but they have a website:
http://www.fscs.org.uk/consumer/about_us/


If their bank is FDIC insured then it's only insured up to 250,000. And that offers no guarantees for you, the end retail customer.


No. A segregated account is only marginally useful in protecting your money. It's true that by having a segregated account, if they go belly up the account should still be there. But that brings up more questions than it answers.

Questions like:
1. Do they have any creditors that could claim against that account? Many will.

2. What if that bank goes under, is it fully insured? The FDIC does not do this.

3. Are their accounting and depositor practices into that account accurate?

4. Do any of the principals have access the account and might they commit fraud?

Needless to say, a segregated account offers little to no real protection.

As for saying "forex trading accounts are never FDIC insured" ... that makes no sense at all. The FDIC does not insure securities, they do not insure trading activities, and they do not actually insure individual accounts. What the FDIC does is they insure the entire bank's depositor debts up to 250,000 per account. If the FDIC member bank goes under, the FDIC has the power to go in and sell the bank's assets to cover debts. Some of that debt is depositor debt, and they have the power to help cover a portion of the bank's net depositor debt. That money is then accessible to the end customer for the amount they qualify. Oftentimes those accounts are then transferred to another bank, and you can continue to bank with the new bank or transfer to another.

In the US the SIPC covers securities transactions. But their rules are not the same, and they don't provide blanket coverage. An SIPC member firm provides it's end customers with coverage similar to the way the FDIC operates (altho there are some notable differences) but only for qualifying transactions. Futures and spot currency transactions do not qualify, however cash balances do. So if your Forex broker is a member of the SIPC and it goes belly-up, then individual trades are not insured and you would lose their value... but the unused cash balance in your account would be insured.

To make things more complicated, you have subsidiary companies and registration there-of. For instance company X may offer stock brokerage services, would comply with SEC and FINRA regulations and be a member of the SIPC. However their parent company "Company Y" might not be. The financial strength of the parent company then offers no protection.

Likewise, a sibling company of company X, another subsidiary of company Y, might offer forex and futures brokerage services. They might be a member of the NFA, but not FINRA, and may not be a member of SIPC. If you were to have an account with them you would have no protection, even tho they may share a similar name with the stock brokerage company.

And you might not even know which one you're with. The parent company might umbrella these offerings thru a standard single interface, and simply execute your trades thru their subsidiaries. You would need to verify every detail.

Now that you're completely confused... let me sum it up. If a forex broker claims that you're funds are protected by the FSA or FDIC, they're lying, you're not, don't sign up with them. If a US broker claims that it's a member of the NFA and that they offer SIPC coverage, well that is possible (Interactive Brokers). If a broker makes a big deal of having segregated accounts, realize that they're only telling you that as a marketing ploy. It offers no real protection.

Thank you very much for in depth answer.

Hi,

Brokers under jurisdiction in the UK and regulated by the FSA automatically subscribe to a up to £50K government guarantee for your funds.

regards
daytrading

Really? Sweet. What organization handles that? Does the FSA mandate that?

Are there any limitations you know of? Do they cover only funds, or do they also insure active trades?

Are most UK forex brokers, spread-betting firms, whatever, regulated by the FSA?

Rabid,

I am not sure whether it is in the Bank of England's code of conduct for all regulated financial institutions throughout the UK, or whether it is in the statutes of the FSA - but it is a requirement.

When I used to work for city firms, individual positions (or a bulk of positions run on a day to day basis) were insured by us - and it was up to us to do that on a voluntary basis...mainly for our own protection.

As far as I know, the £50K guarantee is a pure 'default' one that covers scenarios like Refco's and the like.

Spread-betting is offered mainly by the retail brokerages because its a tax-free way of trading. Spreads are not as good as 'normal' accounts and not many instruments are offered in spread-betting.

We have in the UK quite a few institutional inter-dealer brokers that work exclusively with banks and corporations and they have different regulations of those operating for the retail customer.

regards
daytrading

Hold your horses! What do you mean a tax-free way of trading? for the trader or... ?

In the UK "spread betting" isn't taxed as income.

Contracts for differences (CFD's) which are offered by retail brokerages on any instruments (except futures and options) are liable to capital gains tax of 40%, or when I used to have my own trading firm, they gains were liable to corporation tax at the appropriate levels.

If you take your savings and open a spread-betting account, you won't pay tax on any gains.

regards
daytrading

P.S. As far as I know from people who use it, the spreads are not as good as in FX, CFD's etc, and as I mentioned before, you won't get the whole variety of instruments offered.

Ouch... It feels so bad to know that I'm paying thousands to the government each year. And a forex trader in UK is not.

It's like, Every trade that UK trader makes, Is around 30% profitable than mine.

Citi offers an FDIC insured FX trading account for US dollar margin. This is for an UNLIMITED AMOUNT - not just $250,000. The product is CitiFX Pro. I believe its the only FDIC insured margin FX account.

Read the fine print on that...


Non-US dollar amounts are held outside of the US and not FDIC insured. The depositor insurance offering for the balance ends Dec 31st, 2009.

Hello Rabid
Your expose about this issue is spot on
I know it is a old thread but I hope people take this issue very very seriously

FSA / FSCS insurance is not very clear either when it comes to FX brokers as compered to Equity brokers