April 14, 2014

Regulatory Changes for Forex Brokers

Forex brokers have been experiencing regulatory changes for almost the past 10 years. The first and most dramatic of the of these changes were in the US in 2008. The oversight agency for Forex in the US is the NFA (National Futures Association). At that time the NFA had made a decision to dramatically increase net capital requirements for Forex brokers. It was only a couple years prior when Forex brokers could operate with a capital position of $300,000. By the end of 2008 the net capital requirement for a Forex broker or RFED (Retail Foreign Exchange Dealer) was $20 million. The NFA had also instituted restrictions on order types including hedging. Result from this was movement of these brokers to various jurisdictions.

Many of the larger Forex brokers set up shop in the UK or Australia. These were two of the more established regulatory locations. Other brokers set up in places like Cyprus, Mauritius, or New Zealand. As more and more brokers were setting up in these locations the local regulators also felt the need to increase capital requirements and institute other regulations.

Most recently New Zealand was announced that it will start instituting these types of requirements. They have established that they will require a broker to have a capital position of NZ$1 million. They have also announced that they will require management and other members to assume responsibility for the company. It will be interesting to see the response from the numerous brokers that have established New Zealand as their home. For the brokers that will remain in New Zealand the net capital position will offer a sense of security for their clients. For other brokers that can’t fit the bill they may have to look at other offshore locations. As a Forex industry keeps growing expect to see you more and new regulations from these other jurisdictions.

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