Sign In   Register


NO22 - Forex Regulatory Agencies

"A Forex Regulatory agency is an important institution that maintains the integrity of the market. This is essential because when there is no confidence in the markets, it can wreak havoc. Therefore, a forex regulatory agency is an important element in the ecosystem of forex trading. In this article, we will walk you through the role of a forex regulatory agency and also why they are important. You will learn about some of the major regulatory agencies around the world and also understand the importance of trading with a forex broker that is regulated and licensed. This is an important piece of information that you should pay attention to. You can avoid a lot of pain at a later stage because scams are something that are common to forex trading. Read this article to understand why it is important that you stick to trading with a regulated or a licensed forex broker."

A regulatory agency is a government appointed institution which is tasked with the purpose of maintaining the integrity and transparency in the financial markets. These government institutions of course act independently from government supervision but make for an important aspect the efficient functioning of the financial markets.

When it comes to forex trading, there are many such regulatory agencies who oversee the proper functioning of the forex markets in their jurisdiction. Some of the names that you might have come across include the Securities and Exchange Commissions (SEC), the Commodities and Futures Trading Association (CFTC) in the United States.

In just about every major jurisdiction there are various such regulatory agencies.

What does a forex regulatory agency do?

A forex regulatory agency maintains the integrity of the forex markets. This means that they have oversight of the forex brokers and other financial institutions that operate in the currency markets.

A forex regulatory agency is like an external body that enforces rules and regulations in the currency markets. Therefore, if a forex broker wishes to set up business in a certain jurisdiction, then they need to get approval from their local governing body.

A forex regulatory agency, after conducting its due diligence on a forex broker, its ownership structure and the ultimate beneficiaries issues a forex trading license. This license allows the forex broker to legally offer forex trading to the people in that jurisdiction.

Besides issuing licenses, a forex regulatory agency also does random and periodic checks such as audits in order to ensure that the forex broker is maintaining the integrity of the financial markets.

You might be wondering why there is a need for such as regulatory agency. The reason is because the financial markets are so vast that it is easy for a forex broker to manipulate the markets and make some profits.

This of course, comes at the cost of the trader. In order to avoid these issues, a forex regulatory agency is required. From a trading perspective, trading with a regulated forex broker also gives a sense of security to the forex trader.

What are the main forex regulatory agencies around the world?

Each jurisdiction has its own local governing authority. Here are the most common and of course popular forex regulatory agencies that you will come across.

The United States: Securities and Exchange Commission or SEC for short are tasked with oversight of the equity markets. They are also responsible for public listings. This means that if a company wants to go public, they need to file their documents with the SEC first. Then comes the Commodities and Futures Trading Association or CFTF. The CFTC oversees the commodities and the futures markets. Every broker that offers U.S. futures trading must be regulated by the CFTC.

Europe: In Europe there are many regional forex regulatory agencies. For example, the Cyprus Securities and Exchange Commission of CySEC for short is the main body that oversees and regulates the forex brokers and other financial companies that are based out of Cyprus. Because Cyprus is part of the EU, a CySEC license allows forex brokers to operate legally all across Europe.

There are also other regional authorities such as BaFIN which is the local regulatory agency for forex brokers that are registered in Germany.

United Kingdom: In the UK, the Financial Commission Authority or FCA for short is the main forex regulating agency. To be able to offer forex trading services, a forex broker must adhere to the guidelines issued by the FCA. Just like with any forex regulatory agency, the FCA has the power to shut down a forex broker if they fail to adhere to the guidelines and principles.

Australia: The Australian Securities and Investment Commission or ASIC for short is the regional authority for overseeing the forex and the financial markets in Australia. All Australian registered forex brokers need to gain a license from ASIC before they can operate. Among the various forex regulatory authorities, the ASIC is considered to be one of the toughest. Therefore, it is not surprising to note that Australian regulated forex brokers maintain a higher level of credibility compared to the rest.

Are there any benefits for you as a trader?

As a trader, trading with a regulated forex broker doesn’t have a direct impact on you. However, you can rest assured that the regulated forex brokers offer a higher level of transparency and offer credibility to trading.

There are many cases when offshore forex brokers who are not regulated by the forex regulatory authorities tend to scam forex traders in various ways. We will cover this part in more detail in the latter parts of this section.

Read 1644 times Last modified on Sunday, 12 May 2019 08:38