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- Regulations of Forex trading varies around the world
- There is no single body governing the whole market
- Regulators set standards that brokers under their jurisdictions should follow
- Regulations help ensure that Forex is safe and secure for everyone involved
Forex Broker Regulation - Does It Vary?
Forex regulators explained: Forex trading regulations ensure fair and ethical business in the market.
Over the last decade, Forex trading has become a heavily regulated market. One of the main aims of the Forex regulations is to make Forex a safe and secure investment option for everyone.
There are many different Forex regulators in the market. Depending on the jurisdiction, the Forex trading market might be governed by either a central bank or a specifically created, designated regulatory agency. These agencies are coming up with the local laws of Forex trading and are licensing the companies that fit the rules of conduct.
The rules that Forex brokers have to follow vary largely according to the jurisdiction. Some countries have adopted stricter regulations than others, because of which, Forex trading can be very different in different countries.
Although it is true that Forex trading laws are different all over the world, there still are some patterns. For example, in recent years, many countries have introduced restrictions on the maximum leverage offered to traders to limit the risks of Forex trading.
So, let’s discuss top Forex regulatory bodies in different regions and see how they are keeping the funds of local Forex traders safe and secure.
Europe
Forex trading is very popular in Europe and there are millions of people who are part of this market in the region. While the majority of European countries have their own regulators, there is one entity that has an influence on the whole financial market of the region. The European Commission, more specifically, a law called MiFID II largely controls the Forex trading market in the region. MiFID II, short for the Markets in Financial Instruments Directive entered into force back in 2018 and is aimed at strengthening investor protection and improving the functioning of the financial markets by making them more efficient and transparent.
Thanks to the MiFID II directive, a Forex broker licensed by the regulator of the Forex market from any European country is able to offer services to the trades from any of the EU-member states. The regulatory framework in Europe is largely dominated by the European Securities and Markets Authority, simply known as ESMA, however, there are many other regulatory agencies in European countries.
However, these regulatory agencies are required to strictly follow the MiFID II directive. Among the most popular regulatory bodies in Europe is CySEC, Cyprus Securities and Exchange Commission, which licenses a lot of Forex brokers.
According to the local Forex trading laws in the EU, Forex brokers are restricted from offering traders bonuses and promotions. In addition, if a broker wishes to receive a license from CySEC, it is required to have at least €750,000 in operating capital, and €200,000 in the initial share capital. The region also has restrictions on the available leverage offered to retail traders, which should not be more than 1:30.
Among the most popular regulator of Forex market are:
- The financial regulator of Germany, BaFin
- The UK Financial Conduct Authority, FCA
- The Swiss Financial Market Supervisory Authority, Finma
- The financial regulator of Italy, Consob
- The Financial Regulator of Spain, CNMV
North America
When it comes to Forex trading regulations, North America is one of the strictest places. The biggest financial market in the region is the United States, where the Forex trading market is regulated by two agencies. They are:- The Commodity Futures Trading Commission, CFTC
- The National Futures Association, NFA
Also, American Forex trading laws restrict trading CFDs due to the higher risks involved. In order to be able to offer services to local traders, brokers have to register as Retail Foreign Exchange Dealers at CFTC, and as the Futures Commission Merchant by NFA.
The current rules that Forex brokers in the United States have to follow were adopted under the Dodd-Frank act back in 2010.
Another country in the region where Forex trading is very popular in Canada. Forex trading regulations in Canada are very complex, as the country has as many as 15 different regulatory bodies that oversee Forex trading.
These Forex trading regulators include Canadian Securities Administrators, CSA, and the Investment Industry Regulatory Organization of Canada, IIROC. The remaining regulatory bodies are provincial regulators.
While the country is providing traders with a high level of protection, it is a little complicated for brokers. Every broker in the country is required to be licensed by IIROC. The Forex trading laws in Canada are very similar to the ones that are adopted in the United States.
In general, Forex regulations in the whole region tend to be stricter compared to other regions around the world.
Asia & Oceania
Forex trading in Asia as well as in Oceania is very popular. There are millions of people trading Forex in these regions and the market also tends to be well-regulated. Although there are many countries in Asia that lack Forex trading regulations, there are also others that are very strict when it comes to misconduct in the market. In the majority of cases, Forex trading in Asian countries is controlled by the central banks. However, there are also others that have created designated regulatory agencies. One of the best-known Asian regulatory agencies is the Hong Kong Securities and Futures Commission, SFC. In fact, SFC is considered to be one of the strictest authorities around the world. The regulatory agency requires a high level of security from brokers.
Among the best Forex regulators around t