Start a FX/CFD broker in the UK

Taken as a whole, the UK is the largest market in the world for FX/CFD trading and spread betting. As a result, there are plenty of executives looking to start a FX/CFD broker in the UK or for existing brokers to get a FX/CFD license from the Financial Conduct Authority (FCA) – the UK financial regulator.

The FCA is also one of the most respected financial regulators globally. There is a sophisticated legal framework governing the FX/CFD industry, with meaningful enforcement as well. This means getting an FX/CFD license from the FCA lends a high level of credibility to your business and can provide a boost to your brand.

Despite this, there are also some downsides for any executive or company looking to start a FX/CFD broker in the UK. We’ll look at some of these in more detail below, but the main ones are long processing times, high costs and an extremely competitive local market.

Why start a FX/CFD broker in the UK?

1. Tier-1 jurisdiction and respected license

The UK is a tier-1 jurisdiction for FX/CFD brokers. This is because the FCA is one of the most respected financial regulators in the world. Moreover, most people trust that, in the UK, the rule of law is respected. Combined with the FCA’s more sophisticated regulatory framework, this means potential clients are more likely to trust you and know that you are a serious, well capitalized business.

2. Access to the largest FX/CFD and spread betting market in the world

In combined revenue terms, the UK is the largest FX/CFD market in the world. Unless you want to operate illegally or in a legal grey area, the only way you can access the UK market is to start a FX/CFD broker in the UK or acquire an FX/CFD license from the FCA.

3. Local expertise

The FX/CFD industry ultimately has its roots in spread betting, which is a product that you can only offer in the UK and Ireland. This means that the industry has deep roots in the UK and a lot of local talent. We believe that corporate governance and risk management standards in the UK, for FX/CFD brokers, are the highest in the world. Some brokers may not value these points highly. We believe long-term business success is predicated on them.

Licenses for FX/CFD brokers in the UK

As the above table illustrates, the UK offers more than one option for anyone looking to start a FX/CFD broker with FCA licensing. It is worth outlining what those options are, as your own circumstances will influence which one you ultimately go for. And if you are interested in learning more about the options available to you then have a read of our article on how to start a FX/CFD broker in the UK affordably.

1. A full scope £750k license

This license is what most FX/CFD brokers operate under. It gives providers market making abilities, meaning they are able to operate using the b-book model. The ‘£750k’ component refers to the minimum capital requirement for brokers with this license. 

2. SNI £75k license

A broker which operates as a ‘Small Non-Interconnected firm’ (SNI) with a £75k capital requirement cannot hold client funds or engage in market making. In other words, if you get this license, you cannot operate the b-book model and you cannot take deposits from clients. The upside is that this license has a much lower capital requirement. The downside is that you are not really so different from an introducing broker. While the front end ‘skin’ of your website may be yours, the backend operations are likely to all belong to another company.

3. FX/CFD UK appointed representative

This is another route that brokers can take where they effectively outsource a huge amount of the regulatory requirements to another company. As the name implies, you are a representative of that company and will have to put small print on your website to that effect. Typically FX/CFD providers who use the appointed representative model have to pay a fixed monthly fee to the company they work with. These vary but we see at least £5k per month being a common figure. Note that most of these providers also operate on a revenue share model. So you pay the higher of either your monthly fee or a proportion of the revenue you are generating. 

We believe appointed representative arrangements are an underrated option for FX/CFD start up brokers. They are not used often, despite the positives they offer, such as lower costs and a quicker time to market.

Can you get a matched-principal FX/CFD license in the UK?

Executives with some prior knowledge of the FX/CFD industry may have noticed that there is no option for a £125k or £150k matched-principal license in the list above.

The reason for that is the FCA is in the process of phasing out the exemption that existed for this license previously which gave a lower capital requirement for brokers that only operated under the a-book model. 

That exemption is no longer in place and is being gradually phased out by 2027. The end result will be that FX/CFD brokers in the UK using that license today will have to operate with the same capital requirement structure that a £750k license has or give up their license.

Steps to start a FX/CFD broker in the UK

Unlike offshore or unregulated jurisdictions, getting a FX/CFD license from the FCA takes a long time and requires a lot of paperwork. The below is a simplified overview of the process and is not an exhaustive list of the full requirements, but rather some of the key actions you’ll have to make when applying for an FCA license.

1. Set up a UK company

In order to start a FX/CFD broker in the UK you will have to set up a local company. This is actually a fairly streamlined process and is likely to be one of the simplest things you do when applying for a FX/CFD license from the FCA.

2. Meet capital requirements

The capital requirements for brokers, which we look at in more detail in a section below, have changed since the start of the 2020s. For a full scope broker, this is the higher of £750k or 25% of your fixed operating costs. 

3. Demonstrate an ability to meet the FCA’s compliance standards

The compliance requirements for UK FX/CFD brokers today are extremely burdensome. The FCA requires that you be able to demonstrate an ability to meet these standards. For example, in your application, you will have to show that you can meet the standards set by Consumer Duty regulations, as well as the standards set out in the FCA handbook.

4. Prepare a regulatory business plan (‘RBP’) for the FCA

The FCA asks that you have a regulatory business plan, or ‘RBP’, when you make your application. The information required for this is extensive. 

You will have to explain…

I) Why you are setting up the company

II) What your business is, who the target audience is, and how you will market it

III) Governance overview, including board structure

IV) Staff overview

V) Any outsourcing you plan on undertaking

This list is not exhaustive and the business plan is likely to be an extensive document. 

5. Make sure you have a good understanding of the application

One of the things the FCA notes is that applicants for a FX/CFD license, or indeed any financial regulatory license, must understand the application itself.

Although the FCA knows and acknowledges that consultants and lawyers are likely to help you put your application together, you cannot outsource everything to them. Any questions that the FCA asks will go to you. This means you must have some understanding of what you are doing.

How long does it take to get a FX/CFD license in the UK from the FCA?

The actual application review process for the FCA is supposed to be around six months. However, this can go on for much longer. There are cases where it can take over a year.

Note that this does not factor in the huge amount of work you have to do in order to prepare your application.

While we don’t want to put anyone off from getting this license, the reality is that it is likely to take you at least 12 months, at the time of writing, to start a FX/CFD broker in the UK.

Moreover, we have heard from different sources that the FCA has been extremely reticent about issuing new licenses to FX/CFD providers, with almost no new licenses given out in the last couple of years.

How much does it cost to start a FX/CFD broker in the UK and get an FCA FX/CFD license?

We believe that you are looking at a cost of at least £1m to get a full scope £750k license in the UK today. The large bulk of that ‘cost’ is the capital requirement. The positive of this is that money is not going anywhere, you aren’t ‘spending’ it. Nonetheless, you need to have it and you cannot use it for other operating expenses.

On top of this, there are a plethora of other costs you need to consider as well. For example, you will have to hire local staff to get a license, which is not a cheap thing to do – the UK is a developed economy and the staff you hire are likely to be experienced compliance executives.

Then you have to factor in the cost of running an office. Although you can minimize office costs, these cannot be reduced to the cost of a post box. You have to have a meaningful presence in the UK to get an FX/CFD license from the FCA.

If you decide to get a £75k license, the cost is going to be commensurately lower. That is true not just in terms of your license fee but also your staffing and office expense costs. 

The lowest cost option to start a FX/CFD broker in the UK is potentially the appointed representative route. This is because you do not have to put up minimum capital and basically just have to have a business plan approved by a firm that takes on appointed representatives. As noted, these can be £5k per month, which is substantially below the other options available to you.

What are the capital requirements for FX/CFD brokers in the UK?

If you want to start a FX/CFD broker in the UK and use the b-book model then your minimum capital requirement is going to be £750k. 

As noted above, the option to operate as a matched-principal broker with a lower capital requirement is being phased out, so this is not a viable FX/CFD license in the UK any longer.

Your alternatives are to get a £75k license that is effectively an introducing broker license or to operate as an appointed representative, in which case the firm you are working with covers the capital requirement costs.

How much does it cost to run a FX/CFD broker in the UK with an FCA license on a yearly basis?

This is a tricky question because costs always vary. However, we estimate that it will cost you, at an absolute minimum, hundreds of thousands of pounds each year if you start a FX/CFD broker in the UK and want to operate the b-book model.

We have found that even brokers operating a bare bones operation have very high costs in the UK. For example, we know of at least one broker that was operating using the low cost matched-principal license with less than five full time employees, and their costs were still over £500,000 per year. 

Maintaining a full scope license, with the ability to run a b-book, is likely to be much more expensive than this.

Because the matched-principal license is being phased out, the only other option you have to save costs is to operate via the introducing broker style £75k license or to act as an appointed representative. However, even with the latter, you will have high ongoing costs to maintain your relationship with the firm.

Are FX/CFDs regulated in the UK?

CFDs are heavily regulated in the UK. There are restrictions on leverage you can offer, as well as how you can market the products.

This is not even taking into account the huge amount of regulation which exists around Consumer Duty rules, regulatory reporting, accounts, record keeping rules, and so on. 

The bottom line is that doing business and staying compliant in the UK as a FX/CFD broker requires a lot of work. 

Starting a FX/CFD broker in the UK or getting a FX/CFD FCA license – the positives and negatives

The upsides and downsides of starting a FX/CFD broker in the UK are almost the inverse of what you would get by getting an offshore FX/CFD license. Whether the upsides will outweigh the downsides really depends on what your own situation is and what your goals are as a business.

Setting up a FX/CFD broker in the UK – the positives

1. Access to the biggest FX/CFD market in the world

The UK has the largest combined revenue of any jurisdiction in the world today for the FX/CFD industry. Getting an FCA license to operate an FX/CFD broker is the only way to access that market completely legitimately.

2. Branding and reputation

The high costs of acquiring and maintaining an FX/CFD FCA license, as well as the respect for the rule of law which the UK tends to be associated with, means that clients are more likely to see you as a trustworthy firm, which is run properly and to a high standard. We are aware of some regions where high net worth clients will only deal with FX/CFD brokers that are regulated by the FCA.

3. Banking and payments

Being regulated by the FCA is going to make it much easier for you to access banking and payments solutions. This is a huge problem for brokers based offshore and should not be overlooked.

4. If you can make it in the UK, you can make it anywhere

The UK is an extremely competitive market, with high costs, and extremely stringent regulations. We believe that if you, as a small player, are able to succeed in this environment then it will prepare you well to do business in other regions as well.

Setting up a FX/CFD broker in the UK – negatives

1. Cost

Without doubt cost is the biggest problem for FX/CFD brokers looking to get an FCA license or for start ups looking to set up a broker in the UK today. To run a full scope firm that can operate using the b-book model, you are probably going to need at least £1m to get started. This is simply not a viable option for a lot of companies.

2. Ultra competitive

The combination of regulatory restrictions and a number of extremely well capitalized large players means that the UK is now an extremely tough market to succeed in. This can be a blessing if you manage to make it work but do not rule out how tough this is to achieve.

3. Huge regulatory burden

The FX/CFD industry in the UK today is highly regulated. This means just staying in line with regulations is both expensive and extremely time consuming. 

Final thoughts on UK FX/CFD license – £750k license vs £75k license vs FX/CFD appointed representative

The high costs mean that anyone looking to start a FX/CFD broker in the UK today is likely to be an existing company with a lot of money behind them or a start up venture with sizeable backing from investors. 

Start-up players looking to bootstrap a business are going to find it close to impossible to immediately get a FX/CFD license from the FCA that allows them to operate with the b-book model. In the past, the matched-principal license offered an attractive, cheaper way to get started but this is no longer possible.

As a result the main options now on the table for smaller companies looking to start a FX/CFD broker are to get a £75k license or to set up as an appointed representative. 

We think both options may appeal to someone that has managed to find a compliant way to onboard UK traders to a brokerage.