The FCA, Copy Trading and Mirror Trading

E-Toro looks east as FCA classifies copy trading as portfolio management

Jan 2015 – The FCA has, nearly a year after writing to leading retail brokerages in the UK regarding copy trading, clarified its stance on the matter.

Auto Copy Trading – Managing investments permissions are required

Quoting guidance on MiFID issued by ESMA in June 2012, the FCA states that the automatic execution of trading signals, where users authorise a signal provider to trade on his or her behalf, requires the provider to hold portfolio management permissions.

Manual Copy Trading Advising on investments permissions may be required

Providers that only offer manual copy trading, where trade leaders or signal providers publish trades but action is required from users wishing to copy the trade in order to execute it, will not require portfolio management permissions. However, providers offering manual copying must be aware that in many cases the FCA will consider manual copy trading to be advising on investments, and the providers would need to be regulated to offer this service.

UK vs international regulation

E-Toro’s recent $27 million funding round, which included substantial investments from venture capital funds in China and Russia and was designed to generate opportunities for expansion into those two countries, appears to be even more important in the light of the ruling. It suggests there will be a split in the copy trading market, between those wanting a regulated base in the UK and holding portfolio management permissions, such as Darwinex and those which follow E-Toro’s approach and seek growth in lighter touch regulatory jurisdictions. Cysec, the regulatory body of Cyprus where E-Toro is regulated, is, like the FCA, responsible for implementing MiFID, but have clearly chosen a more lenient interpretation of these rules than the FCA.