In order to verify the validity of a forex broker’s license, one has to inquire directly through the official site of the governing body. Global mainstream governing bodies such as the FCA (Financial Conduct Authority) of the UK, ASIC (Securities and Investments Commission) of Australia, and the CySEC of Cyprus all have publicly available databases of license numbers. Take the case of FCA. Enter the six-digit registration number of the suspected forex broker (e.g., 195355 of IG Group). The official website page will display the company name, the range of the authorised business (e.g., CFD trading available), and if it has a Client Money Protection account. FCA data for 2023 show that the complaint rate of unlicensed platforms is as much as 43%, while the complaint rate handled by licensed brokers is more than 89%.
The composition of license plate numbers is the most significant criterion when identifying counterfeits. A compliant forex broker’s license number should be consistent with the regulatory body’s regulations: CySEC licenses consist of three digits and letters (144/11), ASics consist of six neat digits (443670), and offshore regulations (e.g., Saint Vincent’s FSA) just consist of company registration numbers (1234 LLC), which are unable to guarantee the safety of funds. In 2022, it was one platform that falsified itself as having a CySEC license (number “CIF789”), but the real database showed that the number had been used by an institution that had been deregistered, and investors lost over 5 million US dollars with an average loss rate of 92% for every account.
The segregation of accounts for customer funds is the major indicator of the authenticity of the license. FCA or ASIC licensed forex Brokers have to invest clients’ funds in the accounts of top banks such as Barclays and Deutsche Bank, and segregate them from the company’s business funds. For instance, the ASIC license number of Pepperstone (443670) clearly states that its custoent bank is National Australia Bank (NAB), while a specific offshore platform “TradeFX” claimed that money had been deposited in “international banks,” but failed to provide SWIFT codes or account proof. It was later ascertained that it had utilized customer funds amounting to 120 million US dollars for unauthorized activities.
Past records of penalties indicate dormant threats. By visiting the “Enforcement Actions” webpage at the official website of the regulating agency, it is possible to check whether or not forex Broker have ever been fined or had their license revoked. FXCM was fined 6.5 million US dollars by the CFTC in 2021 for concealing conflicts of interest with market makers. Its NFA registration number (0308179) public record was permanently marked by this offense. On the other hand, unregulated exchanges such as “BitForex” leave nothing that can be traced. When they fled in 2023, they made off with $230 million of customer funds, and the mean rate of recovery for victims was only 3%.
Clone Firm is a common scamming approach. The scammers copy the licensed forex Brokers’ names, license numbers and even websites, but minor differences such as spelling mistakes in domain names (e.g., “Pepperst0ne.com”) and unbalanced contact area codes (+44 to +86) can make them tell. In 2020, the cloning company “Swissquote-Ltd” impersonated Swissquote Bank SA, using similar domain names as well as a wrong FCA license (number 188833), cheated an amount of 8.7 million pounds. Subsequently, FCA blacklisted it and issued a global alert.
Third-party check tools make things more efficient. Registration place, domain age (it must be ≥5 years for compliant platforms), and related companies of forex Brokers can be verified by cross-checking with BrokerCheck (FINRA in the US), Scamadviser or Whois query tools. For instance, if the domain name “xm.com” is inputted, Whois indicates it was registered in 2009 and is owned by XM Group (CySEC license 120/10), while the domain name of a particular fake platform “XMTrading” was registered in 2021, owner details are concealed, and the rate of negative reviews on Trustpilot is 89%.
According to CySEC’s 2023 report, the possibility of systematic verification license investors being defrauded reduced from 37% to 6%, and customers of regulated forex Brokers’ survival rate within three years (continuing trading without margin call) is 48%, which is several times the 12% of offshore sites. Through the triple confirmation of the regulatory database, fund custody certificate and historical record, the risks can be reduced to the maximum.