FOREX regulatory bodies are primarily responsible for establishing FOREX operational and execution standards in their country of operation. By extension, participants in FOREX trading operate according to the rules and standards put in place by the relevant regulatory bodies.
Regulatory and enforcement bodies in the FOREX market have an extremely important role in ensuring that good governance principles are adequately translated into codes of practice that are fully respected. These include ensuring the market is fair and equitable, that no fraudulent activities take place and that transparency is maintained at all times. In the rare cases where something does go wrong, an empowered FOREX regulatory body can intervene quickly by either fining violators or revoking their license altogether.
In what follows, we will clarify the protection mechanisms these regulatory bodies can offer while also listing the best-known regulatory bodies from around the world.
Six Roles Regulatory Bodies Play in the FOREX Market
Managing, observing and supervising the conduct of FOREX companies.
Putting in place the rules and regulations that guarantee the rights of traders and brokers alike.
Ensuring transparency and accountability in all operations.
Safeguarding against fraud.
Looking at the complaints put forward by traders and taking firm actions where applicable.
Penalizing violators of good conduct and governance by imposing heavy fines and/or closing down companies altogether.
Examples of top FOREX trading regulatory bodies include the National Futures Association (NFA) in the US, the Financial Conduct Authority (FCA) in the UK, the Australian Securities and Investments Commission (ASIC), the Swiss Financial Market Supervisory Authority (FINMA) in Switzerland, and the Cyprus Exchange and Securities Commission (CySEC).
The NFA
The NFA is a self-regulatory organization for the US derivatives industry. This includes on-exchange traded futures, retail off-exchange foreign currency (FOREX) and over-the-counter (OTC) derivatives (Swaps). The NFA is headquartered in Chicago and maintains an office in New York City. The NFA is a non-profit, independent regulatory organization. The organization does not operate any markets and is not a trade association. The NFA operates at no cost to the taxpayer and is primarily financed by membership dues, fees, and assessments paid by members and other participants of the derivatives markets.
Membership of the NFA is mandatory, thereby guaranteeing that everyone conducting business with the public on US futures exchanges and in the retail FOREX marketplaces must adhere to the same standards and requirements. NFA membership is also mandatory for swap dealers and major swap participants. The NFA’s membership currently numbers approximately 4,000 firms and 55,000 associates
The FCA
While the FCA is the financial regulatory body for the UK, it operates independently of the British government (only reporting to parliament) and is financed by fees collected from members of the financial services industry. The FCA regulates financial firms providing services to consumers and maintains the integrity and transparency of the financial markets in the UK.
Each UK FOREX broker should be licensed by the FCA. Details for this are easily accessible on FOREX companies’ Websites, with each carrying a register number. In cases where a company claims it is licensed by the FCA, you can easily verify this information by visiting the FCA at the following URL: register.fca.org.uk. If you find results, then the company’s claims of licensing are legitimate. Otherwise, the company in question is not licensed by the FCA and should be avoided at all times.
The ASIC
The ASIC is an independent commission of the Australian government, charged with the role of supervising and regulating the national corporate sector. Perhaps the most important two roles of the ASIC are to regulate company and financial services and to enforce laws to protect Australian consumers, investors and creditors. Established in 1981, the ASIC came about following recommendations from the Wallis Inquiry. The ASIC's authority and scope are determined by the Australian Securities and Investments Commission Act of 2001.
The ASIC, which reports directly to the Treasurer, is responsible for the administration of all or parts of the following legislation:
- Corporations Act of 2001.
- Insurance Contracts Act of 1984.
- National Consumer Credit Protection Act of 2009.
The FINMA
The FINMA is the Swiss government body responsible for financial sector regulation in the country. This includes the supervision of banks, insurance companies, stock exchanges and securities dealers, as well as other financial intermediaries present in Switzerland.
The FINMA is an independent institution with its own legal personality based in Bern. It is institutionally, functionally and financially independent from the central federal administration and the Federal Department of Finance and reports directly to the Swiss parliament.
The CySEC
The CySEC is the financial regulatory agency of Cyprus. As an EU-member state, CySEC’s financial regulations and operations comply with the European MiFID financial harmonization law.
According to several online sources, the CySEC has the following four main responsibilities:
- To supervise and control the operation of the Cyprus Stock Exchange and the transactions carried out on the bourse, its listed companies, brokers and brokerage firms.
- To supervise and control Licensed Investment Services Companies, Collective Investment funds, investment consultants, and mutual fund management companies.
- To grant operation licenses to investment firms, including investment consultants, brokerage firms and brokers.
- To impose administrative sanctions and disciplinary penalties to brokers, brokerage firms, investment consultants, as well as to any other legal or natural person who falls under the provisions of the stock market legislation.
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Conclusion
In short, efficient financial regulation gives FOREX traders much-needed peace of mind. If no such regulatory bodies existed, scammers in the FOREX market would be out-of-control and unscrupulous brokers whose sole aim is to defraud traders would spring up. However, even with proper regulations in place, deep-rooted FOREX brokers occasionally engage in fraudulent activities to con traders. It is worthwhile to always cross-examine a broker’s license before registering for a trading account, if anything, to ensure that your investment remains safe. Put simply, the major benefits of regulatory agencies are that they assist in standardizing the way FOREX traders are treated. They work to ensure fair markets, and they treat the safety of invested funds as a priority.
