See Forex Regulation in:
The Forex regulatory framework in different countries across the world looks quite different from the way things are run in the United States. In this section we shall look at Forex regulation by top regulatory bodies including FCA, CySEC, and ASIC in different countries and geographical regions.
A sizable chunk of brokerages are based in various popular offshore locations including British Virgin Islands, Cayman Islands, Seychelles and Mauritius. Whereas some of these jurisdictions provide a legal framework that regulates Forex trading, they are generally very lax on many facets compared with other territories.
Belize is a country that has managed to establish itself as a popular offshore option for Forex and binary traders. This is mainly due to the fact that it's relatively easy to create a shell company without actually living in the country. Companies based in Belize are not required to pay taxes on earnings realized outside the country. The country also boasts strong secrecy laws which makes it tough for governments and independent researchers to find out details about company ownership. The combination of low tax rates, strong secrecy laws, and a favorable jurisdiction have attracted many Forex brokers to the country.
The ISFC is responsible for regulating Forex trading in Belize, though there are several brokerages that are listed in the country despite not being regulated by the organization. Forex regulation in the country is notoriously light-touch, and brokers can become incorporated and regulated in the country with just $30-40k. That's much lower than what it costs for a broker to become regulated in the EU. Some traders feel that the minimum requirement by EU's MiFID do not provide adequate client protection--such traders would want to avoid doing business with Belize brokers since the requirements there are even more scanty. These requirements include:
Although these minimums do provide basic protection for traders, those who feel they require a higher level of regulatory oversight should look elsewhere.
The British Virgin Islands, or BVI, is a group of 50 small islands that are located in the Caribbean to the east coast of Puerto Rico. The islands are one of the most popular offshore tax havens in the world, with roughly 41% of the world's offshore companies located there. The island is beloved by Forex brokers for its strong secrecy laws and tax haven status.
In 2010, BVI introduced a law under the Securities and Investment Business Act that requires Forex brokerages to be registered by the country's Financial Services Commission (FSC), though some firms flout this requirement by continuing to operate in the country without regulatory approval.
Like other popular financial hubs, BVI has come under fire for its minimalist Forex regulatory framework which appears not to provide adequate protection for traders. For instance, brokerages operating in the country are not:
All these requirements are part of the minimum threshold for brokers operating in the EU under Europe's Markets in Financial Directive which harmonizes regulation and oversight across the region. BVI's 2010 Securities and Investment Business Act in mainly deals with regulating mutual funds and preventing insider trading but does not say much regarding retail trading and investment services. The one major requirement is for BVI brokerages to maintain financial records that can be made available for auditing.
This very light regulatory framework effectively means that traders who do business with brokers listed in the country are largely on their own.
Forex regulation varies significantly from one jurisdiction to another, making it very difficult to fully encapsulate all the differences that exist between existing regulatory regimes. These regulatory rules are also in constant flux as new ones come into play in tandem with the evolving Forex market. It's therefore important to do some research into the state of regulation where your particular broker is listed.
That said, it's important for traders to note that whereas regulatory bodies do have the capacity to adjust the prevailing Forex rules and bring order into the markets, in reality this only leads to brokerages shifting base to other less stringent and less regulated markets.
In general, however, the most reputable jurisdictions are the U.S., EU,U.K., Switzerland, Scandinavia, Japan, Cyprus, Australia, Singapore Japan, and New Zealand.