Forex Major Regulators & Compensation Schemes

Why is regulation important?

The Foreign Exchange operates as a decentralized financial market without any central or clearing service. In that context, there are several governmental and other supervisory bodies aiming to control the participants in the Forex market and ensure that they follow fair business practices. These bodies provide financial licenses but also apply penalties or even remove licenses if certain financial entities tend to misbehave.

In most cases, there is also a compensation scheme in the event of a financial firm's insolvency.

Regulator's Objectives

(1) Control financial firms and force them in following fair business practices

(2) Protect retail traders against fraud

(3) Ensure that financial firms can meet the minimum liquidity standards

(4) Minimize the credit risk of the financial market

In accordance with their regulatory standards, brokers become subject to audits, reviews, and evaluations. Not every broker is licensed and regulated by a reliable body, and thus, traders should be very careful when choosing their partners.

 

 

 

Major Regulators Around the Globe

Financial regulators (in alphabetical order), and compensation schemes:

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(1) ASIC -Australia

ASIC is an independent Australian Government body responsible for regulating financial services and consumer credit. ASIC or else 'Australian Securities & Investments Commission' was founded in 1991 and employs more than 2,000 people.

► ASIC (Australia) | ► Securities & Investments Commission Act (2001)

• COMPENSATION SCHEME: NO

There is no direct compensation in case a financial firm (regulated by ASIC) faces bankruptcy. There is only AFCA, a free complaint resolution service that works as an alternative to the courts. their role is to investigate and resolve complaints about financial firms that are AFCA members.

► AFCA

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(2) BAFIN –Germany

Founded in 2002, BaFin is the German Financial Regulatory body. In German BaFIN means "Bundesanstalt für Finanzdienstleistungsaufsicht" and employs more than 2,100 people.

► BaFIN Germany

• COMPENSATION SCHEME: YES

The compensation in the case of insolvency is 20,000 EUR per client. 

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(3) CFTC –USA

Founded in 1985, the Commodity Futures Trading Commission protects the public from fraud, manipulation, and abusive practices related to the sale of commodities and financial futures and options. The CFTC employs 435 people.

► CFTC (USA)

• COMPENSATION SCHEME: NO

The CFTC’s Reparations Program, administered through the Office of Proceedings, provides an inexpensive, expeditious, and fair forum to resolve disputes between derivatives customers and registered trading professionals.

► CFTC Reparations Program 

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(4) CYSEC -Cyprus

Founded in 2001, CySEC is the "Cyprus Securities and Exchange Commission". They employ 42 people.

► CySEC (Cyprus)

• COMPENSATION SCHEME (ICF): YES

The purpose of the ICF (Investors' Compensation Fund) is to compensate retail traders in case a member of the ICF is unable to pay over clients' assets due to its financial problems. The compensation ceiling is 20,000 EUR per client.

► ICF (Investors' Compensation Fund)

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(5) FINMA -Swiss

Founded in 2007, FiNMA is the "Swiss Financial Market Supervisory Authority". FINMA supervision includes banks, insurance companies, stock exchanges, and securities dealers, as well as other financial intermediaries in Switzerland. They employ 350 people.

► FINMA (Switzerland) | Forex Broker: » Dukascopy

• COMPENSATION SCHEME (FINMA): YES

In case of insolvency of licensed securities firms or banks, the compensation is 100,000 CHF per client/depositor.

► Investor and creditor protection

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(6) ESMA EU & MiFID

ESMA (European Securities & Markets Authority) is committed to enhancing investor protection and promoting stable and orderly financial markets. MiFID is the European Union Financial Instruments Directive.

► ESMA (EU) | ► MiFID II

• COMPENSATION SCHEME: GENERAL

In the European Union, the general compensation in the case of insolvency is 20,000 EUR per client

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(7) FCA UK -United Kingdom

Founded in 2000, FCA UK is the "Financial Conduct Authority" of the United Kingdom. FCA is responsible for regulating the financial firms, brokers, and exchanges in the United Kingdom.

► FCA UK

• COMPENSATION SCHEME (FSCS): YES

FSCS protects customers in the event that authorized financial firms fail. Retail clients are entitled to compensation of up to 85,000 GBP.

► FSCS (UK)

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(8) NFA -USA

Founded in 1982, NFA is the US National Futures Association.

► NFA (USA)

• COMPENSATION SCHEME: NO

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(9) SFC -Hong Kong

Founded in 1989, SFC (Securities and Futures Commission) is a non-governmental regulatory body.

► SFC (Hong Kong)

• COMPENSATION SCHEME (SFC): YES

If you sustained losses in relation to exchange-traded products in Hong Kong, and/or securities traded on the Shanghai Stock Exchange or the Shenzhen Stock Exchange and in respect of which an order for sale or purchase is permitted to be routed through the northbound link of a Stock Connect arrangement, the maximum compensation you will receive is HK$500,000, or $64,000 (in today's money).

► Investor Compensation

 

■ Forex Market Regulation

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