The independent, non-governmental Financial Services Authority (FSA) is the single regulatory body for all financial services providers in the United Kingdom. Most financial markets, exchanges, and their related firms are regulated by the FSA. The FSA sets the standards that firms must meet and can take actions against those that don't follow the requirements. The FSA has four statutory objectives: maintaining confidence in the financial system, promoting public understanding of the financial system, securing the appropriate degree of protection for consumers, and reducing financial crime. The FSA has been regulating the financial services industry in the UK since December 2001.

Requirements for FSA-Regulated Brokers
Under the Financial Services and Markets Act (FSMA), any person who carries on a regulated activity in the UK must be authorized by the FSA. To apply to become directly authorized by the FSA, a firm needs to submit an application. The FSA will assess the application and advise the firm of its decision. Once firms are regulated, the FSA requires them to meet the set-out standards and to supply with information, so that the FSA can monitor their business.

* Be FSA-approved.
* Ensure and monitor the safety of client funds held at the bank and fulfill any regulatory obligations.
* Separate client funds from company assets and prohibit any use of client funds for company's own purposes.
* Submit regular financial reports to FSA and conduct detailed annual audit.

Note: FSA do not require separate accounts for each client and funds may be pooled together in one separate account for all clients, as long as they are separated from company's own assets. Clients with large funds can negotiate with their broker for a separate account under their name.

Effects of FSA Regulations on Retail Forex Traders
In short, there will be a higher investment protection for individual Forex traders. The FSA has a priority of making retail markets work more effectively by raising level of confidence among consumers. Under the separate-client-funds requirement, all client deposits are traded as client funds and a FSA regulated broker can not use them to cover its own needs, expenses, and risks, or for any bankruptcy purposes. These rules are one of the most important parts of the UK's financial regulatory system for consumers. For example, in the event of a broker liquidation, the rules protect consumers against losing their funds in the liquidation process, because a liquidator can not use any of the client funds to meet claims of the broker's general creditors. Client funds may only be used to pay out compensations to clients holding deposits with the broker.

Compensation Scheme and Investors Protection
The Financial Services Compensation Scheme (FSCS) is the UK's statutory compensation fund of last resort for customers of authorized financial services firms. If a firm becomes insolvent or ceases trading, the compensation fund may be able to pay compensation to its customers.

Compensation limits for investment business, including Forex trading are as follows: A client can receive up to £48,000, with 100% of the first £30,000 and 90% of the next £20,000.