Global Forex Regulators Explained

In recent years, the Forex market has experienced an exponential increase in brokers available to traders. This was only possible because of a new regulatory regime that lifted some restrictions on how investors could manage their money.  With the legal framework changed, companies across the EU could advertise and offer CFD trading to their clients.

Regulation is an integral part of the business because it assures a fair trading environment and works to limit the risk exposure of clients to illegally run brokers. Clients work with Forex brokers that are regulated by the regulatory bodies. We have chosen the best Forex brokers available to Malaysian traders who are governed by the most prominent regulatory agencies around the world.  We do not feature, mention, or advertise non-regulated brokers on this website.

Since Forex trading is executed outside of a physical exchange on the over the counter (OTC) market, the retail trader is relying on the creditworthiness of a Forex Broker –  it’s vital to assure your retail broker is adequately regulated.

The Main Global Regulators

To become regulated, a broker must adhere to strict rules and processes set out by the regulatory agency that guarantees the broker protects clients funds in segregated accounts, has procedures for handling complaints, and always acts in the customer’s best interest.

The United Kingdom and Europe

In the UK and the EU zone, the FSA (Financial Conduct Authority) and CySEC (Cyprus Securities and Exchange Commission) in Cyprus act as the major regulatory bodies.  CySEC has a good reputation as a trustworthy agency and the preferred jurisdiction for many European Forex brokers.  Caution should be given to brokers who only have one regulator, especially if that regulator is CySEC as there have been incidents in recent years that have made traders wary of how CySEC will go to protect their member brokers.

The scope of the FSA and CySEC activities are:

• Due diligence, only qualified Forex brokers get a license to operate on the European market.
• Impose minimum capital requirements on brokers.
• Consumer protection – updating and adjusting regulations to protect the consumer.
• Protection against fraud.
• Capital protection – which in the EU zone is set to $100,000.

Australia

Australia has a regulatory body called ASIC (Australian Securities and Investments Commission).  ASIC is a dependable body and very traditional in the way they regulate with a strong reputation for representing the consumer rather than the business interests of its members.  That said, a failure of ASIC is to lead the industry in setting regulations that protect customers from emerging threats, and it often lags behind the regulators in Europe.

Malaysia

Malaysia is emerging as a new possible offshore destination for many Forex retail brokers expanding in Asia. The Security Commission of Malaysia is in charge of overseeing the Forex brokers in Malaysia, with the mandate to assure a fair market environment and protect retail Forex traders from misinformation and other illegal activities.

United States

The main regulatory bodies in the USA are the CFTC (Commodity Futures Trading Commission) and the NFA (National Futures Association). The CFTC establishes the regulatory guidelines to protect the interest of the retail FX investors.  Retail FX trading in the United States has not been legalised to the same extent as in Europe, so US residents will have fewer brokers to choose between.

China

The CSRC (China Securities Regulatory Commission) is the main Forex regulatory body in China. The CSRC opened in 1992, and it doesn’t have a long history like its counterparts in the USA or UK. But, with China’s growing presence on the global stage, the CSRC will become more critical in assuring investors that it provides a safe and transparent market environment.

Conclusion

The main benefit of having regulatory bodies is to ensure that markets are fair, and client money is safe. Regulation varies between countries as Western financial hubs have had regulation for many years, and newer financial centres have gotten started more recently.  There are, however, countries that don’t have proper supervision and instead have a less rigorous process by which to oversee their member firms. These regulators are often found in the Caribbean or other Island countries like Mauritius and have a reputation for putting the member firms before the clients.

If you sign up with a Forex broker that is not regulated, traders also face a counterparty risk in addition to the investment risk.  We do not feature any brokers that are not regulated by the organisations mentioned above as we don’t believe they are required to act in the best interest of the trader.  Read more about our processes for selecting brokers on our about us page.