The financial markets are huge and offer plenty of trading options for everyone. However, where there's an opportunity, there's also a potential risk.
People face a major risk when venturing into the investing world: choosing a broker that doesn't comply with the rules. To avoid this mistake, you need to check and ensure you find a broker licensed, regulated, and authorized in your country. Discovering to which regulatory body it belongs to is also crucial: different brokers follow distinct regulation and offer distinct types of financial protections.
In this article, we will discuss popular brokerage regulators in the world, including CySEC, FSCA, ADGM, ASIC, and NFA.
The Cyprus Securities and Exchanges Commission (CySEC) is the financial regulatory authority in Cyprus.
CySEC monitors the financial markets with the support of the European regulatory authorities and the European Commission. If a company decides to offer European customers financial services, it can opt to be registered, licensed, and authorized with CySEC. This firm would also be registered in many local European regulatory bodies, such as BaFIN (Germany), FMA (Austria), CONSOB (Italy), and others.
To be a CySEC broker, companies need to abide by specific rules, including but not limited to:
• An initial share capital value (the amount varies depending on the Investment Services offered and whether the firm will hold client funds or not) and operating capital
• Submit regular financial statements, and audit reports through certified independent third parties
• Ensure the protection of clients' funds through segregated accounts and using reputed banks and quality liquidity providers
• Adhere to the Investor Compensation Fund (ICF), so in case of broker bankruptcy, each client can recover up to €20,000.
CySEC is responsible for:
• Examining applications and granting operating licenses to companies it supervises and suspends and revoke these licenses
• Supervising and regulating the agencies to ensure their compliance with the laws
• Asking for the cessation of practices which are contrary to the market laws
Additionally, CySEC has the power to:
• Grant and suspend financial services operating licenses
• Supervise and regulate stock markets and agencies
• Impose disciplinary sanctions provided by law Issuing regulatory directives
• Apply to appropriate courts to enforce laws
FSCA regulates financial companies in South Africa. The regulatory body is one of the newest in the industry, starting its activity in 2018 by replacing the Financial Service Board (FSB).
- enhance the efficiency and integrity of financial markets
- promote fair customer treatment by financial institutions
- assist in maintaining financial stability
On the FSCA website, we also can find what the regulator's strategic focus areas for the next three years are. These include building a new organization, helping transform the South African financial sector, and understanding new ways of doing business.
Overall, just like the other major regulatory bodies in the world, the FSCA aims to protect investors from losing money thanks to a safer, more transparent, and reputable trading environment.
For more information about South African regulation, check out the FSCA website.
For a company to operate in the GCC area, it can opt to be regulated by ADGM Financial Services Regulatory Authority (ADGM). According to the ADGM website, the “Financial Services and Markets Regulations (FSMR) establishes the legislative and regulatory framework for financial services in ADGM. In particular, FSMR has been broadly modelled on the UK’s Financial Services and Markets Act 2000 (FSMA) and other related legislation.”
ADGM’s Financial Services Regulatory Authority (FSRA) ensures that companies offering financial services in the GCC area comply with the rules. According to adgm.com, FSRA aims to:
• advocate a progressive financial services environment
• uphold the integrity of the whole international financial center by managing any potential risks exposure and undesirable impact
• offer the highest level of regulatory transparency and engagement
• safeguard the best interests of investors
Visit the ADGM website for extra details about FSRA.
The Australian Securities & Investments Commission (commonly known as ASIC) is the primary regulatory body that supervises Australia's financial services sector. Its central role is protecting consumers and investors by working closely with different regulators and organizations.
A firm deciding to offer financial services in Australia needs to have an Australian Financial Services (AFS) license. ASIC brokers must comply with some general requirements such as:
• Operating capital of at least 1,000,000 AUD
• A representative office in Australia
• Adhere to a professional indemnity (P.I.) insurance cover
• Total financial transparency; submission of periodic audit reports,
• Work with top banks, keeping client funds in segregated accounts
Additionally, ASIC carries out its work under the Corporations Act 2001 (Corporations Act), which comes with several responsibilities:
• maintaining, facilitating and improving the performance of the financial system
• promoting confident and informed participation by investors and consumers in the financial system
• administering the law effectively and with minimal procedural requirements
• receiving, process and store, efficiently and quickly, information that is given to ASIC
• making information about companies and other bodies available to the public as soon as practicable
In the U.S., there are two central regulatory bodies: the NFA and the CFTC.
The National Futures Association (NFA) takes care of investors’ protection by ensuring that its members respect their regulatory responsibilities such as improved market integrity, scam, and fraud-fighting through best financial practices.
The NFA works together with the Commodity Futures Trading Commission (CFTC) to fight systemic risk and ensure traders of the reliability of their brokers.
To be an NFA and CFTC broker, a company must abide by several rules, including:
• Follow safe and transparent best market practices
• hire professional staff
• use real facts and numbers to advertise promotional materials without misleading traders,
• submit reports and financial statements to be published on the NFA website,
• never open positions against its clients
• no hedging for traders
• offer a leverage effect of maximum 50:1,
• Keep client funds in segregated accounts
• Have at least $20,000,000 in operating capital.
Sources: adgm.com, fsca.co.za, cysec.gov.cy, wikipedia.org
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