Forex Regulation And Key Regulators

Forex regulation authorities refer to supervisory bodies that enforce the rules and guidelines that govern the foreign exchange market in any particular country or region.

These bodies oversee regulated financial institutions to ensure they abide by the regulations governing all client interactions.

Forex trading regulations vary by country, with different nations having regulatory bodies overseeing the market. Examples of such regulatory bodies include the United States Commodity Futures Trading Commission (CFTC) and the United Kingdom’s Financial Conduct Authority (FCA).

Forex is an OTC (Over-the-counter) market, and no central forex market regulation body exists. 

Foreign exchange is the most liquid and volatile market, with a daily trade volume of over 5 trillion dollars. Forex spans time zones and borders and is a truly global market.

Forex regulation is put in place to protect investors from fraudulent or manipulative practices and ensure that all market participants are operating on a level playing field.

That can become difficult without a central regulatory body. The solution? Individual regulators for individual countries or regions.

These localized supervisory bodies regulate the activities of brokers that fall under their jurisdiction.

Forex trading regulations vary by country, with different nations having regulatory bodies overseeing the market. Examples of such regulatory bodies include the United States Commodity Futures Trading Commission (CFTC) and the United Kingdom’s Financial Conduct Authority (FCA).

Forex is an OTC (Over-the-counter) market, and no central forex market regulation body exists. 

Foreign exchange is the most liquid and volatile market, with a daily trade volume of over 5 trillion dollars. Forex spans time zones and borders and is a truly global market.

Forex regulation is put in place to protect investors from fraudulent or manipulative practices and ensure that all market participants are operating on a level playing field.

That can become difficult without a central regulatory body. The solution? Individual regulators for individual countries or regions.

These localized supervisory bodies regulate the activities of brokers that fall under their jurisdiction.

The table below lists the most popular regulators by country:

Forex brokers regulated in a member state of the European Union fall under the supervision of ESMA).

ESMA stands for the European Securities and Markets Authority. It is a forex regulatory body that oversees securities markets in the European Union. Its primary responsibilities include:

• Enforcing EU regulations
• Advising the European Commission and EU member states
• Promoting cooperation among national regulators

ESMA also plays a role in developing and implementing EU-wide supervisory policies and practices to protect investors and ensure fair, orderly, and efficient financial markets.

The MiFID regulation of 2009 harmonized applicable rules across the European Union and any broker with EU clients.

MiFID stands for the Markets in Financial Instruments Directive. A European Union directive regulates firms that provide services to clients linked to “financial instruments,” including stocks, bonds, derivatives, and structured products. The directive aims to increase competition and protect investors by creating a single market for investment services across the EU.

The main objectives of MiFID include the following:

• Enhancing transparency in financial markets
• Promoting competition and investor protection
• Reducing systemic risk
• Ensuring the integrity of financial markets
• Improving the efficiency and effectiveness of financial regulation

MiFID requires firms to be authorized and regulated by national authorities, to disclose important information to clients, to have internal systems and controls in place to manage risk, and to report their activities to regulators.

In January 2018, the MiFID II came into effect, further strengthening the rules for the forex market, increasing transparency, and extending the directive’s scope to new markets and financial instruments.

MiFID also allows passporting, meaning brokers regulated in any EU member state could onboard clients from other EU countries without having to be regulated in that country.

The Cyprus Securities and Exchange Commission (CySEC), saw a surge in broker registrations after 2004 when Cyprus joined the European Union. Under the passporting scheme, a broker with a CySEC license could onboard clients from other European Union countries.

Choosing a jurisdiction is crucial to the success of any forex broker. Depending on where your client base comes from, certain jurisdictions will make more sense than others.

Recent developments, mainly change to margin and leverage limits imposed by ESMA, have led to a drop in the number of brokers onboarding EU clients.

Client onboarding requirements also vary from jurisdiction to jurisdiction, with KYC regulation being a prime example of this.

KYC (Know Your Customer) is the process by which organizations verify the identity of their clients and assess their potential risks for money laundering or financing terrorism.

KYC aims to ensure that the organization conducts business with legitimate customers and not with individuals or entities involved in illegal activities.

KYC procedures typically include gathering and verifying identifying information, such as a government-issued ID, proof of address, and other relevant documents. The organization may also conduct additional due diligence, such as checking against lists of sanctioned individuals or conducting background checks.

KYC is a legal requirement for financial institutions and other regulated organizations, as it helps them comply with anti-money laundering (AML) and counter the financing of terrorism (CFT) laws and regulations.

Your choice of jurisdiction will define the operations and systems you’ll need to have in place before you can onboard clients. But, again, regulation is necessary to safeguard your client’s best interests.

The PLUGIT solution applies to any jurisdiction you may choose to regulate your operations. All our modules are customizable to fit various requirements, and our easy integration API ensures connection to a vast range of services aimed at regulated forex brokers.

For example, we recently integrated SumSub into our CRM module for easy and effective client verification. We’re also integrated directly with many of the most popular PSPs (Payment Processors), allowing for convenient and secure client deposits.

We’re the power behind over one hundred of the biggest brokers in the world. We designed solutions to integrate seamlessly with your operations with minimum downtime and costly development needs.

We’ve already done all the heavy lifting. PLUGIT lets you concentrate on what you do best, onboarding clients. Our intelligent solutions look after the rest!

For a no-obligation demonstration of what we can do for your business, get in touch, and one of our onboarding specialists will walk you through the PLUGIT approach to making money as a broker.