What Are Financial Regulatory Authorities?

Know the Rules

When people consider starting to invest they usually face a lot of difficulties and stress. Especially, when things turn to financial questions. And most of the time, the biggest question stands up – is it safe, what is going to happen if I lose the money, what will help me to solve various issues, etc.? Well, that’s why the financial market has tons of protections. And one of them, of course, is financial regulatory authorities which watch the whole market. If there is an unfair and obscure broker, these watchdogs take action to stop it or return it on the right path.

As a result, we’ve made this blog post about financial regulatory authorities of brokers. To introduce you to the main names and terms, how these regulators operate, what are their responsibilities, powers and much more.

ASIC (Australian Securities & Investments Commission)

Since 2001 all the retail foreign exchange dealers must get AFS (Australian Financial Services) license issued by ASIC to operate in Australia.  Besides the forex brokers, investment advisors, auditors & liquidators, banks, finance companies, etc. have to register as well. So ASIC trims a wide number of financial objects.

Australian Securities & Investments Commission

Australian Securities & Investments Commission has a lot of regulations and mentioning them all would make this post super long. So we put only a few here:

  • The broker must have a physical office in Australia.
  • The majority of clients must be from Australia. Otherwise, the dealer must have an active license from the authorities of a country where the majority of clients come from.
  • Money of the clients cannot be used as working capital. Also, funds should be held in a trust.
  • Brokers must follow 50% cash or cash equivalent rule that unexpected losses would be met as soon as possible.
  • Only a forex broker who has at least 10% of revenue (min. A$1 Million, 50% in cash or cash equivalent) as NTA (net tangible assets) can operate in Australia.
Furthermore, ASIC has a lot of powers:
  • Create and amend rules for ensuring clear and transparent integrity of the financial market.
  • Ban people from providing financial services.
  • Investigate breaches of these regulations.
  • Perform prosecutions in some criminal matters.
  • Start civility penalty proceedings in a court.

Generally speaking, ASIC controls and watches the whole financial market of Australia. It ensures that all finance objects conduct its operations and business honestly, transparently and according to law. If the broker is licensed by Australian Securities & Investments Commission, sleep well.

 

 

FCA (Financial Conduct Authority)

The regulator functions in the UK. The Financial Conduct Authority appeared in the market in 2013. The organization is accountable to the Treasury and the Parliament. The FCA regulates both retail and wholesale financial firms, banks and financial advisors.

The Financial Conduct Authority now regulates more than 58,000 financial services firms and financial markets in the UK. It’s worth mentioning that forex broker needs around 1 year to get a license from the FCA.

The Financial Conduct Authority

Main keys of regulations:
  • Initial capital swings from £100,000 to £1 million depending on the business model.
  • The company must be debts free. Also, a detailed annual audit by an independent financial auditor is required.
  • The broker must maintain client’s funds in the top security & reputation banks.
  • Complying to anti-money laundering regulations is a must.
  • Maintaining sufficient liquid capital to cover expenses, client’s assets, and other possible funds deprivation. And be sure – it’s monitored strictly.

Also, the FCA may impose penalties for violations, conduct investigations, ban financial products for a certain amount of time, etc.

Last year, the Financial Conduct Authority fined Deutsche Bank for £163 million for serious anti-money laundering controls failings. All these fines issued by the FCA are publicly accessible.

Obviously, the FCA does a great job by watching and controlling the UK’s financial market. Treat the brokers licensed by this authority seriously.

 

 

CySEC (Cyprus Securities and Exchange Commission)

Probably the most seen regulator. Why? Well, most of the forex brokers dwell in Cyprus. The country where CySEC originates and conducts its procedures. A lot of brokers selected Cyprus because of very favorable taxes environment.

To get a license from CySEC, a broker must correspond to these requirements (there are more of them of course):

  • Have a capital bigger than €125,000 or even more than €1,000,000 in some cases.
  • Provide detailed daily, weekly, and monthly reports.
  • Have a physical office in Cyprus. Also, the nominated employees must reside in the country.Cyprus Securities And Exchange Commission
  • Traders should be able to withdraw their funds at any time.
  • The staff should get regular training which expands the knowledge, knowing laws, and competences.  Furthermore, the employees shouldn’t have any criminal records.
  • The employees cannot give any financial pieces of advice. Only qualified persons can do it, as established by the CySEC, and only if it’s necessary. Also, the staff must always use their real credentials – name, surname, and contacts.
  • The broker cannot make any bothering calls using aggressive language, pushing pressure, or unethical tactics.
  • Leverage may not exceed 1:50, except for an experienced trader and with his personal request.
  • The Forex Broker cannot offer any welcome bonuses. Furthermore, even a digital gift goes to the restricted zone. However, some clauses exist but that depends on the offer and its terms.
  • The broker must comply with money-anti laundering policies.

More and more points could lay here, but the list would be extremely long to read. However, as we can see, the CySEC makes a great job of controlling the brokers and protecting consumers. Applying a lot of rules and restrictions, the authority creates a great environment where a trader trust the broker.

The CySEC has these powers:
  • Give warnings and notices
  • Give a penalty and apply a fine
  • Suspend license temporarily or sometimes permanently
  • Bring a case to the court when the things turn serious

The CySEC wasn’t very trusted and loved in the past. However, things have changed since Cyprus joined the European Union. The authority has evolved a lot within the last few years and deserved a better reputation.

 

FSA (Financial Services Agency)

It was born in Japan – one of the biggest financial centers around the globe. FSA (Financial Services Agency) subordinates for Minister of State for Financial Services. That provides a high level of liability. While the main task of the FSA is ensuring the stability of Japan’s financial sector, it has much wider and complicated hierarchy underneath. Knowing the fact of how disciplined japans are, there’s no doubt that the FSA requires a lot. And, of course, it has a very important role in Japan.

Since online trading became really popular, the FSA gives a lot of attention to cyber security lately. Furthermore, they always review and examine finance companies. Not to mention, the authority always tracks the domestic capital market and global economic trends.

Also, the Financial Services Agency cooperates with different institutions and authorities from other countries. That helps to ensure transparency of international brokers.

Like every country, its laws and authority’s responsibilities, the FSA has some as well.

To get a license, the broker needs:
  • Client money must stay in a Trust bank accounts
  • Maximum leverage available – 1:25Financial Services Agency
  • Internal rules of the company is a must
  • An external audit should be done
  • The employees shouldn’t have any criminal records
  • Decision-making body has to be clear
  • A physical office in Japan with at least two employees who have more than three years of experience related to finances
  • All the staff must be trained enough for solving disputes, complaints, risk management procedures

Of course, there are many more requirements for companies, but these points are crucial for the broker to run.

Furthermore, the FSA keeps powers of issuing warnings, suspending licenses, imposing fines and penalties, and putting administrative restrictions. With this in mind, Japan is one of the most strict countries in the world which has great regulation authority with high standards.

 

IFSC (International Financial Services Commission)

The authority based in Belize and operating since 1999. The IFSC (International Financial Services Commission) is responsible for regulating the non-banking financial sector. Also, the IFSC is the member of the Caribbean Financial Action Task Force.

Due to the fact that Belize is one of the offshore centers, this authority doesn’t have so harsh role. They contribute the sector by collecting information, publishing it, also promote Belize as an attractive place for making a business. Moreover, the IFSC assists the government in building policies and regulations.

However, brokers, insurance dealers, payment processors, trustee services, etc. all must register to the International Financial Services Commission. They all get into the registry of Licensed Services Providers (List J stands for Forex brokers).

In order to get to this list, including getting the license, brokers and other subjects must:

International Financial Services Commission

  • Have paid up capital of no less than $500,000
  • Not encourage its customers for spending and trading more
  • Not to use customers funds without authorization
  • Provide reports with completed trades volumes and value of the previous month
  • Not to use Belize currency for the forex brokerage activity
  • Check cash deposits if it outgoes $10,000 (regarding anti-money laundering laws)
  • Update IFSC with the changes in the company
  • Not accept Belize residents for forex trading

The IFSC requires more key points to comply, however, mentioning them all isn’t relevant for a regular trader. Although the IFSC isn’t very strict, it can still impose a fine, revoke or suspend the license, or issue a warning.

All things considered, the IFSC do not put a lot of pressure on the Forex brokers and other financial services providers. Most of their regulations are applied as the recommendations only. But what to expect knowing the status of Belize.

 

Conclusion

To sum up, the financial regulatory authorities play a huge role in every financial market. They watch and supervise brokers, restrict them when needed, give warnings if the operator acts shady, etc. And the most important, they revoke licenses and impose fines, which sometimes are huge. Furthermore, the licensing procedure consists of many steps and requirements. That protects the financial market, including forex, from dishonest and fraud brokers.

All in all, these authorities make sure that tactics disadvantageous for consumers wouldn’t be used. However, some authorities are not so demanding and tight. And sadly, that allows appearing companies which don’t play by the rules. The term forex trading gets a negative meaning for some people accordingly.

 

Disclaimer

This information was collected from various sources available online, including the official websites of these financial regulatory authorities. Due to changing financial environment, some of the terms and details provided here may get outdated. Make sure to double check the information. For providing the highest quality content, we will update this article/blog post from time to time. Moreover, we’re going to add more authorities with explanations and in-depth details.