Luckily for us, there are several regulatory bodies that have been put in place to keep the forex market safe. These include the CFTC and the NFA.
CFTC
CFTC is an independent agency of the United States government that regulates the financial markets of the country. The commission carries out regular market surveillance to ensure that there are no illegal activities happening within the markets. The commission has a broad mandate to protect the interests of all parties involved in the market. The agency also enforces the rules of the game to protect the market’s integrity.
The agency is made up of 13 different operating divisions. Some of these divisions include the Division of Enforcement, the Division of Market Oversight, and the Division of Data. Each of these divisions is responsible for a specific aspect of the agency’s work. These divisions are designed to inform the agency’s data-driven policymaking processes.
The Commodity Futures Trading Commission (CFTC) has been in the business of regulating the derivatives markets for many years. Its mission is to promote transparency in the financial markets and to deter fraud and abuse. The CFTC’s jurisdiction extends to all derivatives markets including swaps, futures contracts, and options.
The CFTC has issued final rules for implementing the Dodd-Frank Wall Street Reform and Consumer Protection Act, which focuses on the regulation of off-exchange retail foreign exchange transactions. These regulations are geared toward protecting the interests of retail investors.
The rules are intended to protect the interests of consumers by ensuring that Forex brokers are properly registered, that they have the appropriate capital, and that they comply with a series of regulations. These include a cap on leverage, reporting requirements, and requirements to register as a Introducing Broker (IB) or a Futures Commission Merchant (FCM).
The CFTC is also responsible for evaluating the registration of other organizations. If the commission determines that an organization is engaging in financial malpractice, they will take direct action against the firm.
NFA
Founded in 1982, the National Futures Association (NFA) is a self-regulatory body that plays an important role in regulating the Forex market in the United States. Its goal is to improve the integrity of the derivatives marketplace and provide investor protection.
The NFA imposes a variety of rules and regulations on its members and broker-dealers. Some of these include financial surveillance, proficiency testing, and risk disclosure. The agency also imposes fines on firms that fail to follow its rules.
The organization provides investors with a variety of educational tools, including webinars and a quarterly investor newsletter. It also provides a way to make a complaint.
The NFA is one of the most well-reputed regulatory bodies in the United States. It operates without taxpayer funding. It works with other authorities to ensure fair practices in the futures and forex markets.
The NFA website features a “File a Complaint” button, allowing traders to submit reports of malpractice. It also includes a database that lists regulatory actions taken by the organization.
Another NFA website feature is a “Status Information Center.” This free database provides users with an online tool to find out whether or not a particular company is legal. It includes links to the NFA’s most recent notices to its members.
The NFA’s website also includes a news section, which lists the latest NFA enforcement actions.
MiFID
Historically, the forex market has been less regulated than other financial markets. There is no central exchange or clearing house, and transactions are decentralized. However, some countries do regulate forex brokers through governmental and independent supervisory bodies.
The Markets in Financial Instruments Directive (MiFID) was passed in 2007 and was intended to promote orderly market trading. MiFID applies to all financial instruments traded in the European Economic Area. It includes all non-equity products such as foreign exchange forwards, forex options, FX swaps, and structured deposits.
The regulation requires firms to meet certain minimum capital requirements and reporting requirements. It also establishes a regime of pre-trade transparency. Before executing orders, firms must collect client information, and report the trades through the approved reporting mechanisms.
In addition, MiFID imposes a series of investor protection provisions. These include mandatory compensation, in the form of a refund of deposited funds. These requirements are applicable to both retail and professional investors.
MiFID aims to increase competition in the investment services sector and to improve the protection of investors. It also aims to make the market more efficient. It covers virtually all financial professionals in the EU, including banks, brokers, fund managers, and exchange officials. It was adopted by the European Parliament and approved by the council of the European Union.
