Forex Regulators

 

🏛️ Eleven (11) Regulatory Authorities Worldwide

Since the Forex Exchange Market is a decentralized OTC market, proper brokerage regulation is a top priority for all Forex traders and partners. Effective regulation requires a reliable authority with sufficient resources to closely monitor its members.

Regulatory authorities oversee Forex brokers to ensure the enforcement of proper business practices. They can impose heavy penalties or even revoke licenses at any time. This creates a strong incentive for Forex brokers to operate with ethics and transparency

These are among the most important regulatory authorities in the financial world:

1. FCA UK (Financial Conduct Authority –United Kingdom)
2. CySEC (Cyprus Securities and Exchange Commission -Cyprus)
3. FINMA (Swiss Financial Market Supervisory Authority –Switzerland)
4. ASIC (Australian Securities & Investments Commission -Australia)
5. FMA (Financial Markets Authority -New Zealand)
6. FSA (Financial Services Agency -Japan)
7. CFTC (Commodities Futures Trading Commission -US)
8. NFA (National Futures Association -US)
9. FSB (Financial Service Board –South Africa)
10. IFSC (International Financial Services Commission –Belize)
11. FSC (Financial Services Commission - British Virginia Islands)

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FCA UK (Financial Conduct Authority)

□ Foundation: 2013 (previously Financial Services Authority, about 4,500 employees)

□ Capital Requirement: 100,000 to 1 million GBP

□ License Cost: 35,000 to 50,000 GBP

□ Covering: 50,000 GBP per client

□ Reliability: 9/10

🔗 More: ► Website | ► Studies

The Financial Conduct Authority oversees the British financial industry and regulates institutions such as commercial banks, investment firms, brokers, and dealers. The FCA supervises 56,000 businesses and acts as the prudential regulator for over 18,000 of them. Its objectives include:

• Protecting financial markets and consumers

• Promoting competition within the domestic financial industry

European Economic Area (EEA) Authorization

The FCA also grants authorization for the European Economic Area (EEA) under MiFID standards. However, EEA firms are regulated by their home countries, not by the FCA.

FCA UK Registration Requirements

• The registration process requires 1 calendar year
• Initial capital requirement between £100,000 and £1 million, depending on the execution model (DD, STP, ECN)
• Liquid cash of £100,000, unrelated to clients’ funds
• License costs £35,000 to £50,000
• Sufficient liquid capital to cover any probable negative impact from the company’s positions (liquidity is regularly monitored)
• The broker should not have any debt
• Client bank account segregation
• Following the anti-money laundering regulations

Client Account Segregation

All FCA-regulated brokers are required to keep client funds separate from their own by using top-tier banks.

Protection of Client Funds in Case of Insolvency

If insolvency occurs, clients of FCA-regulated brokers can claim up to £50,000. This protection is provided through the FSCS (Financial Services Compensation Scheme).

🔗 FCA UK BROKERS: » FP Markets

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CySEC (Cyprus Securities and Exchange Commission)

□ Foundation: 2001

□ Capital Requirement: €125,000 to €1.0 million

□ License Cost: €35,000

□ Covering: 20,000 EUR per client (through ICF)

□ Reliability: 7/10

🔗 More: ► Website

Established in 2001, the Cyprus Securities and Exchange Commission (CySEC) regulates the domestic financial industry. CySEC was the first regulatory authority to issue licenses for binary options firms.

CySEC’s responsibilities include:

• Monitoring and controlling the local investment industry (investment firms, consultants, brokers, etc.)

• Issuing licenses to financial firms domiciled in Cyprus

• Imposing penalties or revoking licenses in cases of regulatory non-compliance

CySEC Registration Requirements:

• The registration process takes 6 months

• Minimum capital between €125,000 and €1 million

• Registration costs up to €35,000

• Daily, weekly, and monthly reporting

• Nominated employees of the regulated broker must be residents of Cyprus

• Since early 2017, CySEC has banned bonus promotions linked to trading volumes

Protection of Client Funds in Case of Insolvency

If insolvency occurs, clients of CySEC-regulated brokers can claim up to €20,000 through the ICF (Investor Compensation Fund).

🔗 CySEC BROKERS: » FP Markets

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FINMA (Swiss Financial Market Supervisory Authority)

□ Foundation: 2009 (previously SFBC)

□ Capital Requirement: 1.5 million CHF (securities dealer) to 20 million CHF (Forex broker/banking license)

□ License Cost: The fees are relatively small and include the registration and the annual supervisory fee

□ Covering: 100,000 CHF per client

□ Reliability: 10/10

🔗 More: ► Website | ► Publications

FINMA was established in 2009 through the merger of the Swiss Federal Banking Commission, the Federal Office of Private Insurance, and the Anti-Money Laundering Control Authority. FINMA offers a wide range of licenses for:

• Swiss banks

• Securities dealers

• Insurance companies

• Bond institutions

• Financial intermediaries

FINMA Registration Requirements:

• The registration process takes a minimum of 6 months

• Forex brokers serving retail traders in Switzerland must register as banks

• Minimum net capital of 20 million CHF for a banking license

• To offer additional investment products such as bonds, CFDs, futures, and options, brokers must obtain a Securities Dealer license

• Securities Dealer license requires a minimum paid-in capital of 1.5 million CHF

• Brokers must maintain 10% of their total risk exposure

• Audits must be conducted by a recognized audit firm

Client Account Segregation

All brokers are required to keep client funds separate from their own, using top-tier banks.

Protection of Client Funds in Case of Insolvency

If insolvency occurs, clients of FINMA-regulated brokers can claim up to 100,000 CHF.

🔗 More: FINMA BROKERS: » Dukascopy Bank

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ASIC (Australian Securities & Investments Commission)

□ Foundation: 1998 (1,844 employees)

□ Capital Requirement: 50,000 AUD to 1 million AUD

□ License Cost: 35,000-50,000 AUD plus minor annual fees

□ Covering: No coverage in case of broker’s insolvency

□ Reliability: 7/10

🔗 More: ► Website

Founded in 1998, ASIC (Australian Securities and Investments Commission) issues the Australian Financial Services (AFS) license to all Forex businesses domiciled in Australia. ASIC licensing is essential for domestic brokers, dealers, financial service providers, financial advisors, consumer credit entities, auditors, and others.

ASIC’s missions include:

• Monitoring and controlling the domestic financial system

• Ensuring investor confidence and financial sector transparency

• Making essential financial sector information available to the public

ASIC Registration Requirements:

• The registration process takes between 7 and 10 months

• Setup costs range from 35,000 AUD to 50,000 AUD

• At least 10% of revenue must be held in cash (minimum 1 million AUD) as net tangible assets (NTA)

• Regular reports are required if the NTA falls below the 10% threshold

🔗 ASIC BROKERS: » ICMarkets

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FMA New Zealand (Financial Markets Authority)

□ Foundation: 2011 (168 employees)

□ Capital Requirement: 1 million NZD

□ License Cost: 10,700 NZD registration fee (Derivative Issuer)

□ Covering: (N/A)

□ Reliability: 6/10

🔗 More: ► Website | ► Publications

The FMA regulates the financial sector in New Zealand. An FMA license is required for brokers, dealers, fund managers, financial advisors, crowdfunding platforms, derivatives dealers, peer-to-peer lenders, auditors, and others. While the FMA licenses domestic firms, foreign firms can register as Financial Service Providers (FSP).

FSP Registration Requirements:

• Application processing typically takes about 6 weeks after submission of all required information

• Registration fee of 10,700 NZD (Derivatives Issuer), plus additional fees

• Minimum net tangible assets of 1 million NZD

• Physical office in New Zealand with a compliance director present

• Periodic audits in accordance with industry standards

• Maintaining sufficient liquidity, managing overall business risk, and honoring all executed trades

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FSA Japan (Financial Services Agency)

□ Foundation: 1998

□ Capital Requirement: 50 million JPY net value (about 430,000 Euro)

□ License Cost: (N/A)

□ Covering: 10 million JPY (85,000 euro) in case of securities firms insolvency

□ Reliability: 9/10

🔗 More: ► Website

Based in Tokyo, the Japanese Financial Services Agency (金融庁) oversees banks, investment firms, securities firms, and stock exchanges. Additionally, the FSA monitors global economic trends and key developments in real time to ensure the operational stability of Japanese financial market participants.

FSA Japan Registration Requirements:

• Forex brokers must maintain a net asset value of 50 million JPY (about 430,000 Euros)

• Client funds must be held in segregated accounts at trusted banking institutions

• Maximum leverage for traders cannot exceed 25:1

• External audits of corporate financial statements are required

• Broker advertisements must not exaggerate or mislead about the trading services offered

• Physical office in Japan with at least two officers who have a minimum of three years’ experience in related businesses

Investor Protection Against Insolvency

If securities companies cannot return clients' assets, a compensation system covers investors up to 10 million JPY (85,000 Euros) per investor.

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CFTC US (Commodities Futures Trading Commission)

□ Foundation: 1974 (employees 435)

□ Capital Requirement: 20 million USD

□ License Cost: (N/A)

□ Covering: (N/A)

□ Reliability: 8/10

🔗 More: ► Website | ► Smartcheck Providers

The Commodity Futures Trading Commission (CFTC), based in Washington, D.C., is an independent agency established in 1974. Its mission is to regulate the domestic futures and options markets. Originally founded to oversee agricultural commodity markets, the CFTC now regulates other derivatives markets including currencies, stock indices, energy, precious metals, and interest rate products. Since the 2008 financial crisis, the CFTC also regulates the $400 trillion swap market. Its objectives include:

• Ensuring transparency in the financial sector by preventing manipulation

• Protecting investors from fraud

• Enforcing competition

Participants regulated by the CFTC include:

• Retail Foreign Exchange Dealers (RFEDs), including Forex brokers

• Commodity Trading Advisors (CTAs)

• Introducing Brokers (IBs)

• Futures Commission Merchants (FCMs)

• Swap Dealers (SDs) and Major Swap Participants (MSPs)

• Commodity Pool Operators (CPOs)

• Floor Brokers (FBs) and Floor Traders (FTs)

CFTC Registration Requirements:

• Minimum net capital of 20 million USD for RFED or FCM registration

• Segregated client bank accounts

• Maximum leverage of 1:50 for major Forex pairs and 1:20 for minor pairs

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NFA US (National Futures Association)

□ Foundation: 1982

□ Capital Requirement: 20 million USD plus 5% of liabilities owed to clients

□ License Cost: 125,000 USD annually

□ Covering: (N/A)

🔗 More: ► Website

□ Reliability: 8/10

The NFA is headquartered in Chicago, with an additional office in New York City. Every entity conducting business with the public on futures exchanges and in the retail Forex market must hold an NFA license. The NFA currently oversees 4,000 firms and 55,000 associates. It enforces CFTC objectives by implementing additional policies.

NFA Extra Requirements for Forex Brokers:

• $20 million net capital, plus 5% of liabilities owed to clients

• $125,000 annual membership fee

• Strict adherence to first-in-first-out (FIFO) order execution

• Credit cards are prohibited (debit cards are allowed)

• Profit claims must be accompanied by a statement warning of the risk of losing money

• Brokers cannot claim that client funds have any special protection

• Brokers cannot claim ‘no slippage’ or ‘guaranteed filling’ unless these claims can be proven

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FSB (Financial Service Board –South Africa)

□ Foundation: 2003 (411 employees)

□ Capital Requirement: (N/A)

□ License Cost: Find the ► full fees here

□ Covering: (N/A)

□ Reliability: 5/10

🔗 More: ► Website

The FSB (Financial Services Board) is an independent institution that regulates the non-banking financial industry in South Africa. This includes overseeing the Johannesburg Stock Exchange, the largest stock exchange on the African continent.

The FSB supervises non-banking sectors such as brokers, financial advisors, retirement funds, insurance companies, investment schemes, and collective investment schemes.

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IFSC Belize (International Financial Services Commission)

□ Foundation: 1999

□ Capital Requirement: 500,000 USD

□ License Cost: 25,000 USD annually, plus $1,000 (one-off)

□ Covering: (N/A)

□ Reliability: 3/10

🔗 More: ► Website

Established in 1999, the International Financial Services Commission (IFSC) is Belize’s regulator for the non-banking financial sector. Its objectives include:

• Supervising and regulating non-banking financial firms

• Collecting and providing information to the public

IFSC members include trustee and insurance services, investment and mutual fund services, asset management firms, securities trading services, Forex brokers, and other foreign exchange service providers.

A Few Words about Belize

Belize is an English-speaking country in Central America. Since gaining independence from Britain in 1981, it has focused on international financial services by offering incentives to businesses, particularly offshore investors. A Belizean IBC corporation supports activities such as asset protection, operating bank and brokerage accounts, ship ownership, and commission arrangements. The currency is the Belize Dollar.

IFSC Registration Requirements:

• $500,000 minimum paid capital, plus an additional $500,000 if derivative products are offered

• $1,000 application fee

• $25,000 annual license fee, with an extra $25,000 if derivative products (CFDs, options, futures, etc.) are offered

• Monthly reports on client capital

• Full segregation of client funds

• Forex brokers may only operate in the OTC market

• Residents of Belize cannot be clients of the Forex services

• Belize currency cannot be used for brokerage business in foreign exchange

• Deposits of $10,000 or more must be verified by the Forex broker as part of anti-money laundering policies

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FSC British Virginia Islands (Financial Services Commission)

□ Foundation: 2001

□ Capital Requirement: (N/A)

□ License Cost: Find the ► full fees here

□ Covering: (N/A)

□ Reliability: 1/10

🔗 More: ► Website

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The Markets in Financial Instruments Directive (MiFID)

The Markets in Financial Instruments Directive (MiFID) is the European Union’s legislative framework for the financial industry, covering banks, investment firms, stock exchanges, and alternative trading venues. All Forex brokers domiciled in EU countries must comply with MiFID policies.

MiFID 2

In June 2014, the European Commission introduced MiFID 2 and MiFIR, which came into effect in January 2018. MiFID 2 aims to:

• Ensure that organized trading occurs on regulated platforms

• Introduce rules for algorithmic and high-frequency trading

• Address shortcomings in commodity derivatives markets

• Enhance investor protection and improve business conduct rules

🔗 More: ► More About MiFID and MiFID2

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Conclusions Regarding Forex Licensing and Regulation

Proper regulation of the Foreign Exchange industry is crucial for all participants. Regulatory authorities ensure that Forex brokers operate with ethics and transparency, avoid excessive risks, and maintain sufficient liquidity at all times.

Each regulatory authority aims to protect the public, especially regarding the safety of investors’ funds. This is achieved by monitoring Forex brokers and enforcing specific policies, such as segregating client funds from the broker’s corporate funds through top-tier banks. A key aspect of fund safety is the depositor protection scheme in case of broker insolvency. Generally, EU countries offer compensation of €20,000. Clients of FCA-regulated brokers in the UK can claim up to £50,000 under the Financial Services Compensation Scheme. In Switzerland, deposits are guaranteed up to 100,000 CHF per client. In contrast, the US and Australia do not provide such protection schemes in cases of broker insolvency.

In most European countries, a Forex broker license requires a minimum capital of €100,000. In the UK, the requirement is similar at £100,000. In the US, Forex brokers must have $20 million in capital. In Switzerland, offering Forex services to retail customers requires a banking license, which means a minimum capital of 20 million CHF. This explains why many Forex brokers choose to establish themselves in EU countries and the UK.

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□ Forex Regulation and Forex Broker Licensing

George Protonotarios, Financial Analyst

OnlineForex.biz (c)