Forex Market Regulation in Europe

In this article, we’ll look at Forex regulatory organizations and agencies in European countries. By obtaining information on your broker’s regulator, you’ll protect yourself from doing business with an unscrupulous company.

Forex regulation varies across different countries. In some EU states, there is no such thing as a Forex regulator. Depending on the jurisdiction, a regulatory agency may be subordinated to the Ministry of Finance or a central bank. A Forex regulator is responsible for licensing and monitoring Forex market players, settling conflicts, imposing sanctions, responding to complaints, working with governmental agencies and financial supervisory authorities.

forex regulation in europe

In fact, a Forex regulator is an arbitrary judge engaged in resolving conflicts between a broker and a trader.

A good regulator provides traders with a good level of protection against a broker’s dishonest behavior. At the same time, harsh penalties discourage brokers from violating the law in the first place. It’s worth noting that a broker may provide its services to residents and non-residents on different terms. With that said, be sure to carefully read a broker agreement before accepting its terms.

There is no all-European Forex regulator.

Each of the EU member states has its laws concerning the regulation of financial and currency markets. At the same time, all national regulators must follow the Markets in Financial Instruments Directive (MiFID). Aiming to create a single financial market, this agreement allows financial companies to work across the European Economic Area.

MiFID is compulsory for all subjects of the European financial market, including brokers, dealing centers, binary options providers, etc. Each EU-based broker must have a MiFID license and comply with the MiFID standards.

MiFID outlines the minimum requirements for investments. Plus, it obliges a broker to keep traders’ money separately from their funds. Compensation funds provide an additional level of protection.  If a broker goes bankrupt, a trader is guaranteed to get their deposit back.

While following the MiFID guidelines, European brokers report directly to their national regulators. For example, UK-based brokers are supervised by the Financial Conduct Authority (FCA). In Cyprus, investor protection is ensured by the Cyprus Securities and Exchange Commission (CySEC).

CySEC is a major Forex regulatory agency. Its beneficial tax regime makes Cyprus a highly attractive economic area for Forex brokers from all over the world. Since the Republic of Cyprus is a member of the EU, CySEC has the same authorities as any other European regulator. CySEC ensures that companies comply with both the Cypriot and European laws, including stock market regulations. If CySEC finds a violation by its licensed organization, it may punish the company by imposing a fine or even withdrawing its license.

FCA is another respectable regulator in the territory of the EU. Its main functions include protecting consumers of financial services, ensuring stability in the finance market, and exercising competition policy. While reporting to Her Majesty’s Treasury, FCA is an independent organization with non-governmental funding. FCA has the authority to prevent the undermining of financial safety. For example, it may ban a company from advertising high-risk financial services. If your broker is regulated by FCA, you can rest assured that you’ve chosen a reliable provider of financial services.