Understanding the role of financial regulators in Forex
The forex markets, as we know are unregulated markets, traded mostly over-the-counter (OTC) unlike the stocks, which are traded via an exchange. Despite this fact, the brokerages that offer or facilitate the trading services related for Forex, including CFD’s do come under the purview of the financial regulators. Commonly referred to as Forex Regulators these institutions are actually authorized to oversee the financial markets activity.
Almost every developed economy has a dedicated team or institution, whose sole purpose is to ensure fairness and transparency in the field of finance which usually comes with hard to understand jargon to the layman. The role of the financial regulatory authorities or institutions is to oversee a large section of businesses that engage in financial services, dealing with the retail customer, with the purpose of protecting the customers. For example, an insurance company (be it automobile or home or life insurance) usually falls under the jurisdiction of the financial regulator, just as an online forex brokerage would.
Role of Financial Regulators in Forex
The role of the financial regulator is to ensure that the businesses that have a financial license adhere to the general framework which includes transparency in reporting the day-to-day activities, maintaining enough liquidity to ensure that the transactions are filled as well as sending frequent accounting reports to the financial regulator.
While it might seem an expensive and an arduous task of obtaining a legitimate financial license, it does offer higher level of credibility for the businesses that obtain the license, including the online forex brokerages. Besides regulating forex brokers, the financial regulators also oversee any and all other subsidiary services such as Binary Options brokerages. introducing broker businesses, forex signal services providers and managed account services.
Main Regulatory Organizations:
ASIC (Review of ASIC) – Australia Securities and Investment Commission (Australia)
CySec (Review of CySec) – Cyprus Securities and Exchange Commission (Cyprus)
NFA (Review of NFA) – National Futures Association (United States)
CFTC (Review of CFTC) – Commodity and Futures Trading Commission (United States)
FCA (Review of FCA) – Financial Conduct Authority (United Kingdom)
FSP (Review of FSP) – Financial Service Providers (New Zealand)
Regional Financial Regulators
Depending on where a business is registered and operating from, the forex broker or a financial business is mandated to obtain a license from the financial regulator. Besides having a business operating license financial services providers also need to obtain a financial license as well.
Below is a list of some financial regulators:
FSA Japan – Financial Services Agency
FSB – Financial Services Board
NYSE – New York Stock Exchange