Thursday September 17, 2020 - 10:34:05 GMT
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Why does a license hold so much importance with financial companies?
The word "license" itself is translated from Latin as "permit". This refers to the right to engage in certain activities. The same is the name of a document that gives an enterprise or a person such a right. For example, a driving license is also a kind of license. Citizens also need a license in order to own weapons, hunt and fish. To engage in certain types of activity, enterprises and entrepreneurs also need a license - these are the licenses that this article will be devoted to.
Why are the licenses needed?
Licenses are introduced by the state in order to protect the life and health of citizens of the country, their rights and legitimate interests, the security of the state, the environment and cultural heritage. The law prohibits the introduction of licensing for any other purpose.
Licensing is a tool to ensure state control over certain types of activities. The state sets the criteria and requirements that must be met by enterprises and entrepreneurs carrying out this or that activity.
In addition, there is ongoing government oversight of license holders' compliance with laws and regulations. If significant violations are identified, the state can revoke the license - this often happens, for example, with various banks.
What types of activities are licensed?
While there are many types of licenses we will basically talk about financial ones and why they are important to financial companies. In general, a license can apply to Forex brokers, enterprises, shops, casinos. The latter is especially important because when people are gambling, they must be sure to have business with legal entities. For example, if you read this casinoroom review here you will understand how much attention is given to the importance of license and almost all major casinos take care of their legal side.
Authority
The first thing that encourages financial companies to apply for a license is authority and reputation. If you have a license like FCA or CySEC, when we talk about brokers, most likely you are trustworthy and people will choose you over other brokers. These licenses have a high degree of confidence and also gives authority to a broker.
Leverage and loss compensation
The regulator limits the amount of leverage to 1:50 for major currency pairs. For binary options and CFDs, the leverage has a 30:1 limit. Customer accounts must be protected from negative balances. All trading bonuses and incentives are prohibited.
In order to compensate for the losses of traders who have suffered from the actions of brokers, there is a compensation fund. If the broker goes bankrupt, the client can count on a refund, but the amount cannot exceed 50 thousand pounds per person. The problem will arise if the deposit exceeded this amount since nothing will be paid over it.
The regulator oversees the activities of brokers. This includes regular collection and verification of reports, control over the quality of services provided. Also, a regular check of the company's solvency, if it is revealed that the broker has financial problems, the regulator will take action. In particular, it can block accounts, in which case the broker's clients will receive compensation.
FCA will handle disputes and disagreements between brokers and clients. Also conducts investigations and receives complaints from the parties to the conflict. The decisions made by the regulator are binding.
Responsibility
Legally, a trader's liability to a broker is limited only to the money that is on the deposit. In any case, the client will not be left in debt to the Forex dealer. If the broker commits illegal actions or in any other way infringes on the trader, then he can contact the regulator.
Conclusion
Today's Forex market is regulated by law and controlled by large organizations. They can resolve conflicts, punish the culprit and prevent traders from losing money due to deception. But to become part of this settled world. You need to choose brokers that are subject to regulated jurisdictions. With a transparent control system.
Not only brokers but also other financial companies pay attention to the fact that they must be licensed. Otherwise, they will see a huge decrease in profits and clients. And we always prefer such entities which are licensed and regulated by trustworthy firms.
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