Regulation in the Forex Market

The foreign exchange market is impossible to measure – plain and simple. It is the network of large financial centers located in various countries around the globe and since it is not attached to a single location, forex allows traders to have a freedom of choice. They are able to decide when and where to trade regardless of the place of residence or if they are currently traveling around the world. Due to its decentralized nature, forex market has no central clearing house and it doesn’t fall under anyone’s official jurisdiction.

However, large amounts of money are at stake at any given moment and somebody simply has to be in charge. Brokerage firms are not obliged to associate themselves with any licensed authority but they do so in order to keep their clients safe. So if you are a striving trader who is about to start buying and selling on the foreign exchange market and you are looking for a qualified brokerage firm in order to get your account set up, it is suggested that you pay close attention to the details such as the supervisory body they are affiliated with, if any. If a brokerage firm is trustworthy and wishes to safeguard their clients, they will be connected to an official agency in charge in their country.The authorities who regulate a certain market should serve as overseers, monitoring the transactions and the behavior of both the clients and the firms.
The purpose of authority in the forex market is to make sure that all of the transactions are done candidly and directly. Both sides involved in the buying and selling are obligated to abide the law with no exceptions.

Meet the protectors

Different countries have different supervisory bodies but the biggest and most prominent names are Commodity Futures Trading Commission and National Futures Association. Both of these agencies are located in the United States.
Commodity Futures Trading Commission is a self-sufficient agency closely connected to the United States government. It was established in 1974 in order to replace the US Department of Agriculture’s Commodity Exchange Authority. The market was developing and growing quickly and it demanded a governing authority. Since the new trading technologies were introduced at that time, the market evolved and moved to the less physical and tangible exchanges. The computer networks took over the world of currency exchange, changing it forever.Commodity Futures Trading Commission’s goal is overseeing and regulating both option and futures markets. Their sole objective is to safeguard the brokerage and the users from various forms of abuse and fraud in general. The aim is to make trading transparent and keep a close watch on possible harmful practices done within the market.
Another organization with a similar goal was created in the 1980s – the National Futures Association. It was authorized by United States Congress to regulate the futures market but they soon added the supervision of the foreign exchange market to their agenda as well. Brokerage firms are encouraged to register with Nation Futures Association since the membership proves that they are genuine and serious about their business. The firms are reviewed and if they meet National Futures Association’s standards, they are certified to continue conducting their business. At this moment, there are about 4,100 firms and 57,000 associates registered with National Futures Association. Those numbers are staggering and that is the proof how big the foreign exchange market truly is.
There are a couple more notable regulators outside of the United States such as Australian Securities and Investments Commission and Financial Conduct Authority which is a regulating body in the United Kingdom.
Australian Securities and Investments Commission was originally formed in 1991 under a different name but they got in charge of protecting both firms and investors in 1998. They gained control over domestic foreign exchange market in 2009, therefore serving as supervisors of Australian based brokerage firms and investors.
Financial Conduct Authority was created in 2013. Even though it is the official financial regulatory body in the United Kingdom, it is not directly tied to the government. Its existence is supported by the fees they charge to their members, and not by the taxes the citizens of the United Kingdom are required to pay. They have the authority to inspect and review both firms and buyers as well as to search for any deceitful and inaccurate information provided by the firms.

How do these agencies fight fraud and abuse?

The brokerage firms and individual traders who wish to register with an official agency are agreeing to go through thorough background checks and they have to provide all the documents which are requested of them. The agencies have the permission to deny or suspend anyone who doesn’t meet their standards or fail to supply them with the proper records.

When an applicant passes the initial check and they are awarded a permission to operate, they are allowing the agency to conduct additional inspections every now and then. As long as they are the members of the agency, they are giving them the approval to administer an inspection at any given time in order to make sure they are following the rules and regulations of the trading business. Therefore, it is important not to get involved in any fraudulent activities. Otherwise, the contract is immediately terminated and the brokerage firm or an individual trader which broke the rules can be banned. If the detected irregularities are extremely serious, there are numerous other penalties and actions that can be taken. The firms and organizations can be prosecuted in front of a judge and a possible fine can be up to $250,000 depending on a violation.

Some agencies offer different software programs which can be installed on a trader’s personal computer in order to detect any kind of suspicious behavior or misdemeanors done by brokerage firms. Also, a trader who is suspicious of something related to the market or the brokerage he or she is registered at, has an option to file a complaint on the agencies’ official website and they will probably look into it.
Commodity Futures Trading Commission and National Futures Association are also known for their tight bonds with the Federal Bureau of Investigation (or FBI) and they are involved in investigating more serious frauds and bringing swift justice to those involved.

The importance of regulating the foreign exchange market

As you may have noticed, the agencies in charge of regulating the foreign exchange market are fairly new, or they only recently got the permission to watch over the online trades and protect both the buyers and sellers. A few years ago, the foreign exchange market was less monitored allowing frauds and criminal activities to become a part of the exchange process. Between 2001 and 2007, 26 000 individual traders reported some sort of a theft in the foreign exchange market, losing around $460 million, whether it was through misrepresentation, Ponzi schemes, or so-called churning. It is important not to get the impression that the scams were extremely common at that time. The majority of the transactions were done according to the law but yes, some traders were wronged, they lost their money and there wasn’t much they could do about it.The very size of the market made the involvement of the virtual supervisors difficult and the official government agencies were a bit intimidated by this task at first. Their intervention was needed, and now the online trading became more secure and free from danger.
Regulating the foreign exchange market is not important for the direct participants in the trading business only but also for the average citizens of the world who are not even aware that this kind of a market exists. The price of a certain currency and its fluctuations has a huge impact on the economy of a given country. Therefore, in order to keep absolutely everyone safe, forex simply has to be regulated and under someone’s watchful eye.


Large amounts of money attract fraudulence and individuals who are prone to theft. Luckily for everyone involved in trading on the foreign exchange market, the agencies that are in charge of security are doing a great job in protecting the money which is circulating through the market on a daily basis.

This article introduced the biggest security agencies which are serving as the protectors of the market but there are many others. Most of the countries which are a part of the foreign exchange market do have their own agencies and they work as hard as the agencies in the United States in order to shield their clients from any possible harm.
But still, it is hard to cover every single part of the forex market and missteps are bound to happen. When we compare the current state of the market to the past, the progress is evident even though the market is still expanding and growing. The security agencies are maturing and developing themselves, following the trends as well as trying to be one step ahead of the criminals and therefore, they are highly efficient in detecting frauds

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