Regulation – Can it get in Your Way?

forex introducing broker regulation

Forex is global and borderless in nature. That is one of the great things about it. A euro in the US is a euro in the UK is a euro in Asia. It's not like the stock market of a particular country that oftentimes is controlled by a power-hungry government, which enacts laws that keep it an exclusive elite member's club — laws that oftentimes do not help the very investors or clients they were allegedly designed to protect.

For this reason, honest introducing brokers who are willing to provide a valuable service to their clients can still do so, for the most part, without being overburdened with unnecessary laws and regulations that make it impossible for small businesses to thrive in the financial industry.

Please don't misunderstand what we're trying to say here. Forex needs to be regulated to some degree. An organized, regulatory environment is beneficial for all market participants, but we believe that some jurisdictions have regulated or are in the process of regulating the FX market to death. This could put many referral businesses operating in their vicinity at risk and is why IBs need to carefully weigh their options when it comes to where to structure their operations and to what clients they cater.

Introducing Broker Registration and Licensing

registration and licensing for an ib

Each country has its own laws and requirements when it comes to IBs in the FX market. Some countries require businesses and individuals working as introducing brokers within their borders to register with either the government or some self-regulatory organization mandated by the government. Sometimes, specific licenses to operate in foreign exchange must also be obtained. But yet, some governments do not require registration or licensing at all.

 

Draconian Laws and Forex – Want to Play by Their Rules?

forex draconian laws

In the last decade, no other country has probably enacted more severe and controversial laws affecting the Forex market than the United States of America. There are different schools of thought as to why the US has passed so many laws that many consider detrimental to foreign exchange.

For example, the United States has made it illegal for investors residing in the US to open Forex accounts with non-US brokerage firms. This has infuriated many currency traders in the United States because these restrictions don't apply to other financial markets outside of FX. US investors can open stock brokerage accounts in other countries. They can even open foreign bank accounts if they so desire. But Forex? No can do. Investors have screamed “bloody murder" at the top of their lungs, but their cries fell on deaf ears as the 2008 US Farm Bill bulldozed right over them.

In the United States, this has placed all the power over foreign exchange in the hands of both the CFTC (Commodity Futures Trading Commission), who is also the watchdog over the US Futures Markets, and the NFA (National Futures Association). Even though all of these laws were enacted under the pretext that poor, defenseless US investors could not take care of their own money (yet they are still allowed to waste 10% of their salaries on state-owned lottery tickets or bet their lives’ savings on the roulette tables in Las Vegas), it can be argued that Forex US investors are still not any safer than before. Just look at what they endured with the 2011 bankruptcy of MF Global, a US-based, NFA-registered brokerage firm (see the earlier section "Safety of Funds – Bigger Doesn't Mean Safer").

Even though there are a lot of ways for IBs to structure their business so they don't become victims of draconian regulations, those who want to cater to US-based clients are in the dire predicament of having to operate under the NFA/CFTC umbrella. If that is your case, we feel for you and really can't help you. But if your clients are not from the US, then we can guide you in the right direction.

At the end of the day, you may not need to register with anyone or acquire any licenses that do nothing for you or your investors. Oh, and you will also wind up protecting your clients' money when all is said and done.

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