Regulation in the Forex trading industry is a golden standard for the broker’s credibility. Since FX is a decentralized global marketplace, there are certainly more scam brokers than in stocks trading, to give an example. Hence, there are special governmental or independent regulatory institutions that aim to control Forex brokers locally. Trading with a regulated broker means that safety and mutual trust are put in the first place. Now let’s see what goals these institutions pursue.
The purpose of FX regulation
Basically, Forex regulatory bodies operate in the best interests of traders. Under legal supervision, the brokers are obliged to be fully transparent in all aspects, offer fair trading conditions and also meet capital requirements. We should admit that each regulatory institution has its own degree of enforcement. Depending on the region, the regulatory environment may vary.
Almost every country with a well-developed financial market has its own regulatory organization. However, in search for FX trading brokers you will mostly encounter the following top 5 regulators:
Let’s have a closer look at each institution.
What is CySEC?
CySEC license is perhaps the most recognized among representatives of Forex industry. As a Cyprus-based institution, CySEC is a part of EU MiFID regulation. It is also vital to note that CySEC is the first institution that began regulating binary options brokers.
The responsibilities of CySEC include the control over the Cyprus Stock Exchange, provision of licenses to brokers/investment firms and application of sanctions if necessary.
In reality, CySEC imposes less control over brokerages in comparison to other institutions in our list. This explains its immense popularity overseas.
The role of FCA
The Financial Conduct Authority or FCA is a UK regulator. As the matter of fact, all UK-based Forex brokers struggle to obtain the license from FCA, which is not that easy. FCA thoroughly checks the activity of the brokerage prior to giving any license. If the rules of regulation are somehow violated, FCA leaves the right to impose sanctions or ban the activity of the broker.
For the brokers outside the UK, it is possible to get the status of EEA firm.
ASIC is the Australian governmental regulatory body. Overall, ASIS aims to provide corporate governance, control the trading of securities and derivatives (such as Forex), grant insurance and ensure consumer protection. It is also the main regulator of the Australian Stock Exchange.
CFTC & NFA
The last two institutions were created to regulate the US market of futures and options. Indeed, they regulate Forex as well. Being licensed by NFA and CFTC is considered obligatory. Although the regulatory environment in the US is one of the strictest, there are less potential FX frauds than anywhere else.
One of the main goals of NFA and CFTC is to make sure that the brokers follow the rules of openness and transparency. In the USA, any abusive actions in Forex trading are sanctioned very seriously.