How the Forex Market is Regulated
As in any market, the major players in forex are subjected to regulations and scrutiny to ensure that they comply with legal and ethical standards.
Imagine a world without law and order. No rules, no guidelines, no restrictions, no control, everyone having the liberty to do as they please. What comes to mind as the inevitable outcome? Chaos. Utter commotion. The same would be the fate of the forex market, with its $5 trillion worth, if it were left without regulation.
What is Forex Regulation?
Forex regulation is a system of checks that have been put in place to ensure that the forex market is a safe place to be. These checks include the setting up of legal and financial standards. For compliance with these checks to be ascertained or verified, watchdogs or overseers have been set up to monitor the behavior of industry players. These bodies are called regulators.
The primary purpose of regulation is to protect investors from fraud. Forex broker reviews help to guide investors to forex brokers that are regulated.
Who Regulates the Forex Market?
There is no central regulatory body in charge of global forex regulations. Regulatory bodies are set up at local levels across the world. Each of these local regulatory bodies functions under the ambit of the laws governing their respective jurisdictions. However, all regulatory bodies in the EU can operate in all the countries on the continent. One of the most widely used regulatory bodies in Europe is the CySEC (Cyprus Securities and Exchange Commission) which is based in Cyprus. Other major regulatory bodies include the Australian Securities and Exchange Commission (ASIC), Securities and Exchange Board of India (SEBI), US Securities and Exchange Commission, Financial Services Authority (FSA) UK and the Autorité des marchés financiers (AMF) France.
How the Forex Market is Regulated
Forex market regulators set guidelines for forex brokers to abide by. These guidelines protect investors and maintain order in the trading arena.
The regulator is saddled with the responsibility of conducting periodic audits, reviews, and inspection of the financial, legal, and customer-related activities of the forex market players. These guidelines ensure that brokers abide by a set of fair and ethical rules. When these guidelines are not met, a regulator has the power to enforce punishments on the erring broker.
Forex regulation is done in compliance with the prevailing laws of each jurisdiction. These laws spell out a host of requirements for forex brokerage and some elements of these regulations vary from one jurisdiction to another. However, some fundamental standards cut across every area or region of forex regulation. These are;
Registration and Licensing
Regulators are responsible for the registration and licensing of forex brokers. Only regulated brokers are safe for investors.
Audits and Reviews
Periodically, regulators look into the books and general affairs of brokers to ensure that they comply with all financial and ethical standards. For example, there is lots of information that brokers are mandated to pass across to investors. Brokers who fail to do so are punished by regulatory bodies.
The role of regulators is crucial to the safety of your funds. Questions about regulation should be a priority for every investor. Broker reviews should be properly consumed by traders before working with any broker. If a broker isn’t regulated, err on the side of caution and avoid them.