Forex Regulation – Major Forex Regulatory Bodies and Agencies

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Every trader that’s interested in becoming involved in the over-the-counter spot forex market should begin with a solid understanding of the regulatory environment within their jurisdiction. And so, performing the proper due diligence before choosing a forex broker is essential. It will help protect your interests, and make you knowledgeable about who you’re doing business with.

As you explore the opportunities available in the foreign exchange market, and narrow down the list of the best regulated forex brokers, let’s have a discussion of the major forex regulatory bodies and agencies that you should be aware of.

Download the short printable PDF version summarizing the key points of this lesson…. Click Here To Download

How Is Forex Regulated?

The Forex market is the largest financial market in the world. However, unlike the futures, equities, and options markets, there is no centralized authority that is responsible for overseeing and regulating trading activities within this arena.

Instead the role of regulation typically falls to country or region specific government agencies. These regulators of the forex market act as supervisory agencies that license and set standards for Forex brokerage firms and other major players within the foreign exchange market.

The primary purpose of Forex trading regulations is to ensure that the parties involved are acting in a fair and ethical manner, especially as it relates to interaction with clients.

As part of the routine regulation process, these licensed firms will be reviewed on a periodic basis in an effort to ensure that they are meeting the high standards as set by the specific regulatory body. This can include audits and other related measures.

Aside from having to meet minimum capital requirements, these top regulated Forex brokers are typically required to maintain a separate account for clients’ funds. These funds are to be segregated from the company’s operational business account.

Any deviation from this practice is considered a violation, and can lead to monetary penalties, loss of license, and even forced closure. It is considered a serious offense, and one, that can lead to criminal penalties as well for principals of the brokerage firm.

Forex regulation in the United States

In the United States, the agencies that are responsible for regulating the Forex market are the Commodity Futures Trading Commission (CFTC) and the National Futures Association (NFA).

The CFTC was established in 1974 in an effort to protect individual investors participating in the futures markets. This has also extended to spot Forex transactions. The ultimate goal of the CFTC is to create a fair and level playing field for all traders and investors.

One of the ways that they’ve done this is by publishing the Commitment of Traders report, also known as the COT report. The COT report is published every week on a Friday, and lists various trader positions by category including commercial hedgers, large speculators, and small speculators.

This is an important and widely anticipated report used by many forex and currency futures traders. One of the main benefits of this report is that it provides a highly transparent snapshot of net trader positions by category.

The second regulatory body that is responsible for overseeing the activities of forex brokers and introducing brokers is the NFA. Every foreign exchange trading broker in the United States, and introducing broker must register with the NFA. The NFA performs much of the registration and licensing process, and is essentially an extension of the CFTC.

The Dodd Frank act is an important piece of legislation that addresses the rules and practices governing forex trading activities in the United States. This law was enacted in 2010, shortly after the financial crisis. Some of the forex rules and regulations that were incorporated include a reduction in the leverage ratios allowed, and increased capital requirements for forex brokerage firms.

Due to the strict requirements set by the two regulatory agencies and the Dodd Frank act, only a few forex brokerage firms have been able to meet and maintain the standards set under the law. As of this writing, the three CFTC regulated forex brokers that are licensed to do business in the United States are TD Ameritrade,, and Oanda.

Forex regulation in the United Kingdom

The Financial Conduct Authority (FCA) is the regulatory body that is tasked with forex market regulation in the United Kingdom. It is the agency responsible for screening and issuing Forex brokers licenses to qualified entities. In addition to that, they routinely monitor and perform due diligence to ensure that all members are meeting their statutory requirements.

The authority of the FCA comes from the Financial Services and Markets Act 2000, also known as FSMA. This act created strict rules and guidelines for licensing qualified financial services companies within its jurisdiction. Due to this strict FCA regulation, there exists a high standard when it comes to issuing licenses to Forex broker firms.

For starters, FCA regulated forex brokers must meet minimum capital requirements for consideration. For a dealer license, which is also known as a market maker, the minimum capital requirement is €730,000. A second type of license which is commonly used by straight through processing or STP brokers is an intermediary license. And for this license, the minimum capital requirements is €125,000.

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Finally there is a restricted broker license, which provides for the marketing of financial related products and services to the investing public. And for this privilege, a firm would need to meet the minimum capital requirement of €50,000.

Once a company is licensed by the FCA, they will need to follow strict guidelines to ensure continued compliance. Some of the practices that must be put into effect include segregation of client funds, the hiring of key manager roles, proper risk disclosure statements, and a system for monthly financial statement preparation and other reporting requirements.

And in addition to this, all FCA regulated brokers must strive for transparency and avoid deceptive practices that run counter to the best interest of their clients. Any violations found by the FCA can result in adverse action taken against the offending party.

Along with these measures, FCA forex regulation also curtailed the use of excessive leverage in forex trading and related instruments. These restrictions were imposed in an effort to protect consumers from losing money from unrealistic expectations and over exaggerated claims.

Forex regulation in the European Union

Forex regulation in the European Union is fragmented and most countries tend to have their own local regulatory body that is in charge of monitoring foreign-exchange related business. Having said that, there is a specific law that encompasses certain standards that need to be met by all EU based broker firms. This is known as the markets in financial instruments directive or MIFID, for short.

The overall aim of MIFID was to streamline the regulation of financial services companies within the European countries. Following the financial crisis of 2008, a second law was enacted known as the MIFID 2. The purpose here was to expand on the regulatory rules and requirements that were adopted under the original law.

Here are some of the requirements set forth in MIFID and MIFID2:

Segregation of Client Funds – Brokers must maintain a segregation of client funds from their operating business account. This means that under no circumstance must the broker utilize customer funds for the purposes of meeting the financial obligations of the broker firm or any of its officers.

Maintain Transparency – Brokers are required to make market pricing as fair and efficient as possible. This includes utilizing processes and systems for best order matching in over-the-counter market. Additionally brokers must execute client orders in a speedy and efficient manner, as permitted by market conditions.

Segmenting Clients – MIFID mandates that foreign-exchange brokers segment their client base into two distinct groups. Retail traders versus Professional traders. The purpose of which is to ensure that the broker is offering only the most pertinent financial products and services based on experience level.

Investor Protection –  In the event that a licensed Forex broker goes out of business or bankrupt, investors are protected monetarily up to a coverage limit of €20,000. It’s important to note, however, that this investor protection only applies to European economic area (EEA) citizens. For those persons adversely affected, but whom are not EEA citizens, the compensation is limited to approximately €1000.

One of the more popular regions for forex brokers to establish their base in Europe is Cyprus. These forex brokers come under the oversight of CYSEC regulation. Below is a list of EU countries and their local forex regulatory agency:

Austria – Financial Market Authority
Belgium – Banking Finance and Insurance Commission
Cyprus – Cyprus Securities and Exchange (CYSEC)
Estonia – Finantsinspektsioon
France – Autorite des Marches Financiers
Germany – Federal Financial Supervisory Authority
Greece – Capital Market Commission
Ireland – Central Bank of Ireland
Italy –  Commissione Nazionale per le Società e la Borsa
Latvia – Financial and Capital Market Commission
Lithuania – Securities Commission of the Republic of Lithuania
Luxembourg – Commission de Surveillance du Secteur Financier
Malta – Malta Financial Services Authority
Netherlands – Authority for the Financial Markets
Poland – Polish Financial Supervision Authority
Portugal – Portuguese Securities Market Commission
Slovenia – Securities Market Agency
Spain – National Securities Market Commission

Forex regulation in Australia

Australia is a growing center for foreign-exchange trading activity. The Australian Securities and Investments Commission (ASIC) is the regulatory agency providing oversight of Forex brokers doing business in Australia. The ASIC is one of two financial regulatory bodies in Australia. The other is the Australian Prudential Regulation Authority (APRA).

The ASIC is responsible for the regulation of both the forex market and the ASX, which is Australia’s main equity market. ASIC was organized in 1998, and its duties and responsibilities have grown greatly over the years. Currently ASIC is tasked with overseeing operations in foreign-exchange, ASX securities market, the credit markets, and the Chi-X exchange.

When it comes to advancements in technology for the purpose of improving financial transactions, the Australian government and private sectors have been on the forefront. One such technological improvement is known as the “New Payments Platform”(NPP), which allows many financial transactions to occur in real time.

To become licensed by ASIC to do business as a forex broker, a company must meet high standards. For one, there’s a capital requirement of at least one million dollars. In addition to this, all customer funds must be held in segregated accounts at top-tier banks.

And as with most other major forex regulatory agencies, licensed Forex brokers must file annual statements, along with other compliance reports to ensure that the high standards are being met. On the consumer side, the ASIC is also quite active in providing education to traders and investors about the financial markets.

In recent years, ASIC has come under scrutiny by major advocacy groups for falling short of protecting consumers from the malfeasance of certain financial institutions. Since then ASIC has stepped up its efforts in its governance activities so as to ensure that investors and consumers enjoy the highest consumer protection under Australian law.

Forex regulation in Japan

Japan is a popular destination for many forex brokers because of its long tradition and favorable reputation as a major financial center.

Foreign-exchange brokers in Japan are regulated by the Japan Financial Services agency (JFSA). The JFSA is a government agency that was founded in 2000 and is responsible for overseeing the activities of banks, financial institutions, securities firms, insurance companies, and forex brokers. Ultimately, the JFSA is accountable to the Ministry of Finance of Japan.

The primary function of the JFSA include licensing foreign-exchange brokers, and other financial services firms. It also aims to protect the financial interests of investors and consumers.

They actively monitor the license member firms to ensure that the rules and regulations set forth are being followed, and impose penalties whenever needed for those companies that stray from the strict guidelines laid out. The JFSA can also take an active role in settling disputes that arise from clients and a member firm.

Forex regulation in Canada

Financial market regulation in Canada occurs at both the national and provincial levels. The two main regulatory bodies that oversee Forex market activities include the Canadian Securities Administration (CSA) and the Investment Industry Regulatory Organization of Canada (IIROC).

With these two main regulatory bodies along with the various provincial regulatory agencies, the level of broker regulation is quite high and can sometimes even be a source of confusion. And because of this, there are only a limited number of licensed Forex brokers that operate in Canada.

Many of the laws surrounding foreign exchange trading appears to be similar to those of the neighboring United States. The IIROC is the primary regulator for Forex brokers, and routinely conducts oversight and auditing of its members to ensure compliance.

IIROC also sets the maximum allowable leverage that Forex brokers can provide to their retail clients. Currently that maximum leverage limit is 50 to 1 and in some cases 45 to 1. On the surface these limits seem rather generous, however, it is quite a bit less than those offered by many European and Australian brokers.

A point also worth noting is that Canadian citizens are protected under the Canadian Investor Protection Fund (CIPF). The maximum coverage allowable under CIPF is $1 million. But it’s important to note, that investors are not protected under certain circumstances such as brokerage bankruptcy or fraudulent activity.

Forex regulation in Hong Kong

Forex brokerage firms in Hong Kong are regulated by the Hong Kong Securities and Futures Commission (HKSFC). The HKSFC is an independent regulatory body and is in charge of monitoring financial companies involved in the Hong Kong securities and futures markets. The spot forex market is also included within this umbrella of regulation.

One of the interesting aspects of the HKSFC is that it is completely independent from the government. It’s operational funds are generated from certain membership fees and other related sources. The primary goal of HFSFC is to ensure an efficient and orderly market, that serves both the investors and financial institutions. 

This agency is also responsible for screening and approving various financial products. HKSFC also sets guidelines for customer complaints and has set up a subsidiary known as the Investor Compensation Company LTD.

The subsidiary company is responsible for receiving and validating claims, and making recovery attempts for realized losses arising from misconduct, noncompliance, or other related offenses.

Forex regulation in Singapore 

Singapore serves as the largest foreign exchange center in the Asia-Pacific region. And with its dynamic economy, it’s no wonder that Forex brokerage firms are choosing Singapore as a preferred destination to set up business operations.

The Monetary Authority of Singapore (MAS) is the acting central bank in Singapore. The same governing body is also charged with regulating the forex market in that jurisdiction.

And so, the MAS is responsible for a wide range of activities and functions including monetary policy, banking and securities oversight, and regulation of insurance companies.

Any and all forex brokers seeking to do business in Singapore are required to be registered with and licensed by the MAS. The mandate of the MAS is to promote a well-structured and stable financial industry that is in adherence with the highest ethical standards as it relates to the handling of investor relations.

Download the short printable PDF version summarizing the key points of this lesson…. Click Here To Download


In this article, we have taken a look at major regulatory bodies involved in the oversight of forex trading activities. As noted, there is no centralized exchange that handles all or even most spot forex transactions. Therefore, each region has its own regulatory agency that is charged with handling oversight activities, and maintaining efficient and fair order flow processing.

Additionally, investor and consumer protection is one of the primary functions of each financial regulatory agency. We have seen that some countries such as the United States, Canada, and the United Kingdom have more stringent rules surrounding the licensing and maintenance requirements of Forex brokers, as compared to other regions.

And, although some forex regulatory agencies appear to do a better job than others, it’s important that at the very least, you protect yourself as best you can when trading in the over-the-counter forex market. One of the best ways to do that is to make sure you are only doing business with one of the licensed and regulated forex brokers within your jurisdiction.

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