The daily trading volume weighing Forex, the largest financial market globally, is already more than $6 trillion. Currency exchange and forex trading is among the most liquid markets in the world and offers limitless trading opportunities for investors and traders to make profits.
Opportunities to make a profit also create openings for some unprincipled brokers and traders to take advantage. Moreover, the Forex market is a decentralized one and with no central exchange. Thus, recent years have seen the foreign exchange market becoming more prone to fraud as it is less regulated than other financial markets. Hence, specific legal and ethical standards are set for Forex to encourage ethical trading and forex regulation UK.
Currency and forex brokers operating in different countries must understand and follow exchange controls and regulations to deliver profitable trades and eliminate your risks of unethical trading. They must be licensed and registered in the country where they operate. However, the regulation and enforcement can vary from country to country.
Who Regulates the Forex
As there is no central body to oversee global forex regulations, the regulatory bodies are set up at local levels and per the respective jurisdictions. EU regulatory bodies cover all the countries and currency broker regulation UK functions as per the UK jurisdictions. Other major forex regulatory bodies include the Financial Conduct Authority in the UK, US Securities and Exchange Commission, Australian Securities and Exchange Commission, and Securities and Exchange Board of India.
Licensed brokers may be subjected to currency transfer regulation in the UK and have certain capital requirements. They are subject to regular reviews, recurrent audits, and evaluations from time to time to ensure if they meet the industry standards. They must submit financial and capital appropriateness statements periodically.
However, the jurisdiction and regulation can vary from country to country. In some countries, governmental and independent supervisory bodies regulate forex brokers and serve as watchdogs for their respective markets.
The objective of regulation
The purpose behind FX regulation UK is to encourage ethical business behaviors among brokers, investors, and traders. The regulations serve as a system of checks to safety and ethics in the forex market. Legal and financial standards monitor the behavior of forex players to ensure compliance. The primary aim is to safeguard investors from fraud and regulate the markets.
The key regulatory requirements are as follows:
- Do not make misleading claims – FX regulation demands to maintain client conduct and prevents brokers from making unrealistic promises to their customers or encouraging them to take risky decisions when trading currencies.
- Keep the clients well informed – Currency broker regulation UK ensures that the broker’s clients are aware of their account status and are well informed of complete risks associated with Forex.
- Ensure minimum capital requirements – The restrictions on minimum capital requirements ensure that clients can take out their funds at any time, even if the broker becomes bankrupt.
- Undergo periodic auditing – Forex regulation UK encourages periodic auditing to lower the financial risks and avoid any misappropriation of funds.
- Do not use clients’ funds – Restrictions for client funds require that the broker cannot use clients’ funds for its operational expenditures and maintain separate bank accounts.
As a customer involved with forex trading, one should understand that forex requirements and legalities apply to all the participants who engage in forex activities. The broker managing his trades or accounts must provide a monthly or quarterly disclosure document that must include the proscribed disclosure language to maintain transparency.
The regulatory requirements for currency transfer and forex trading
Given the volume of trading and involvement of currencies from all parts of the globe, it is essential to establish regulatory requirements for forex business. It becomes essential to regulate forex trading platforms that can operate on different devices such as desktop, tablet devices, smartphones, and more.
Forex policies and procedures protect customers’ personally identifiable records and financial information, and customers are notified of these policies. Forex brokers and traders need to abide by a certain protocol to ensure a transparent and safe environment for all the traders. They must have a risk management program that is established, maintained, and enforced to control the risks associated with forex activities. A supervisory system ensures that the risk management program is being followed diligently by the appropriate personnel.
It is a big mistake to use Forex brokers who are not registered and aren’t under regulatory supervision. Supervision requirements can help detect unethical conduct and anti-fraud activity to solicit customers or introduce customers to risky trade decisions. Unethical behavior cannot be ruled out when trading currency or propitiating in forex trades. With no established standards and regulations, there is no way to take legal action against them in case something worse happens. Make sure to select a legal and reputed broker for currency trading who abides by the rules and regulations set for Forex.
The responsibility of the customers
Although brokers are often blamed for trading losses, it is the customers’ responsibility to thoroughly research Forex, its reals, and regulations before opening an account. Get complete information on currency transfer regulation UK and ethical trading strategies before you place a trade in a virtual environment and avoid risking your own money. The onus lies on the traders to ensure the integrity of trades and as per the trading standards.
While the forex market is gradually becoming more regulated, one cannot rule out the presence of many unscrupulous brokers or the possibility of broker scams. It is of utmost importance to be aware of forex broker regulations and use a broker that adheres to ethical business norms and works in the clients’ best interests. Currency broker regulation UK ensures that broker implements standard practices that work for the trader and offer financial protection.
As a trader or customer, if one feels that they are already in a problematic situation, it is essential to verify if the broker is being dishonest or conducting illegal activity. If he fails to satisfy you with his answers, you must report the person to the regulatory body in your country or jurisdiction so that they can enforce action against them.
HedgeThink.com is the fund industry’s leading news, research and analysis source for individual and institutional accredited investors and professionals