16 July, 2013
Cyprus, July 16th, 2013: Windsor Brokers Ltd. recently published their ‘Disclosure and Market Discipline Report’, announcing the company’s Capital Adequacy Ratio end 2012 at 44.28%. This figure is five times above the minimum requirement and is currently one of the highest ratios in the FX industry, in Cyprus and abroad.
It is of utmost importance for investors to run a check on the broker they intend to work with; if they meet legal requirements, comply with laws and regulations, have the necessary licenses, offer competitive conditions and efficient customer support. However what happens when a broker who offers traders extremely low spreads, bonuses and countless freebies actually has a very high risk of going bust or running out of funds due to lack of sufficient capital?
A way to carry out a financial viability check on a broker is to consult two important figures: the ‘Tiers 1 Capital’ and the Capital Adequacy Ratio. These two figures demonstrate if a company has adequate capital reserves in comparison to the financial risks that it is exposed to and whether it is capable of sustaining its own operations in addition to those of investors.
The Capital Adequacy Ratio, also referred to as ‘CAR’, is a formula that is used by regulators to measure the safety of an investment firm. This percentage was originally developed by the Basel Committee on Banking Supervision (BCBS) for banks and was later on also implemented for financial companies. The minimum CAR required by the second accord, known as Basel II, is currently set at 8% and will increase to 10.5% in the future.
The report, usually referred to by brokers as the ‘Disclosure and Market Discipline Report’ or ‘Pillar 3 Disclosures’ should be available on an investment firm’s website for investors to view at anytime.
Figures that are stated in these reports should be controlled by auditors to ensure accuracy and provide legal entities as well as investors with transparent information.