Forex regulatory authorities, the good, the bad and the ugly

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Forex regulatory authorities are the watchdogs of the retail forex industry. They are a government enabled body which looks after various aspects starting from issuing licenses to set up a forex brokerage firm to ensuring transparency and fairness in the industry.

Most often, a forex regulatory authority also conducts audit checks on the firms licensed under them to ensure that the firms adhere to the norms. Depending on the jurisdiction, you can find a local forex regulatory authority.

The primary purpose of the regulatory authority is to ensure that the forex brokerages that operate in the jurisdiction adhere to the rules while also protecting the citizens that fall under its purview.

In the retail forex brokerage industry, a forex broker can set up shop in the jurisdiction and offer their trading services to customers globally where trading forex and CFD's is legal.

However, not all forex regulatory authorities are created equally. There are some authorities who do not really protect the interest of the customers while there are some that are very strict.

Here are the best and the worst forex regulatory authorities.

02 ASICASIC is the financial regulatory authority, domiciled in Australia. The regulatory body was established in 1998. ASIC is considered to be one of the best in the industry due to their strict standards and ethics. Although an ASIC licensed brokerage can offer trading services to global customers, ASIC is very strict and constantly audits the firms that they license.

For example, ASIC was the first forex regulatory body that has banned brokerages from directly taking positions against their clients. Besides this, ASIC also requires that firms that it grants license to must have a locally domiciled office and the firm needs to have 1 million AUS in operating capital.

Firms are also required to be open to period audit checks to ensure transparency in their business model.

ASIC regulated forex brokers are considered to be one of the best in the industry. 

FCA - Financial Conduct Authority

04 FCAThe FCA is the UK's regulatory authority and is responsible for administration of forex brokerages as well. The FCA was formerly known as the FSA prior to the 2008 global financial crisis.

The FCA is also a well known and a reputable forex regulatory authority. Their prowess came to the forefront in the aftermath of the Swiss currency shock. The FCA was one among the few known for protecting the investors. Following the Swiss currency shock, some FCA regulated forex brokers went bankrupt. The FCA took an active role in ensuring that investors got compensated up to 50,000 GBP.

One of the unique things about the FCA is that it mandates all forex brokerage firms to allocate client funds in a custody account. This segregation of customer funds ensures full protection of investor money in the event that the forex broker goes bankrupt.

The FCA also has strict protocols and audits that brokerage firms should submit to. Currently, all FCA regulated brokers are also allowed to offer their trading services to clients in the European Economic Area. However, this is subject to change after the March 2019 Brexit deadline.

CySEC – Cyprus Securities and Exchange Commission

03 CySECCySec regulated brokers are a majority when it comes to retail forex trading. CySec was at one point accused of lowering its standards in order to appease and attract international firms to establish and gain a CySec license.

Because CySec is the financial watchdog for Cyprus which is in the European Union, CySec regulated forex brokers are able to gain direct access to the European Union countries.

The regulatory body was also accused of turning a blind eye to fraudulent financial companies and levying minor penalties on the firms.

However, things have been changing over the past five years. Following a number of scam brokers that set up shop, CySec has become extra vigilant. Although the requirement capital to gain a license is just 75,000 euro, CySec also ensures that firms are part of the investor compensation fund. This covers a traders' investment of up to 20,000 euro in the event of bankruptcy of the firm.

Traders should however do their own due diligence with Cyprus regulated forex brokers as it is quite possible that you could still come across a few fraudulent brokerage firms.

Other offshore regulatory bodies

Talking about the worst, you will also come across forex brokerages regulated in offshore jurisdictions such as Seychelles, Mauritius and the British Virgin Islands. Brokerage firms that set up their licenses here do so for a reason that it is cheaper.

Also, the costs of getting a trading license is a lot easier. Firms are not required to officially set up an office here, making it easy for brokerages to register a virtual office. In times of crisis, such offshore regulatory bodies make little to no attempt to intervene to protect the customer interests.

Some traders still get drawn to such brokers because most of the times they can by-pass regulator limitations. For example, offshore regulated forex brokerages can get away by offering leverages of 1:500 and higher. This is something that is prohibited among the more reputable regulatory authorities.

While trading conditions might seem attractive, it comes with a high risk when you trade with such offshore regulated brokers.

Read 1135 times Last modified on Monday, 28 January 2019 21:34