Jul 20 (PR): The Forex market is the world's biggest and most liquid. As a result of its scale and extent, the market's regulation faces particular difficulties.

OTC means over-the-counter, not exchange-traded. The lack of a centralized exchange has many advantages, but it also eliminates part of the necessary control to ensure that the market is fair and not misused.

When it comes retail OTC markets, regulators are needed to keep an eye on things. Market competition and small-business protection are intertwined, so the regulator must find a compromise.

Regulation of a market that is open 24 hours a day, 7 days a week, throughout the globe is an impossible task. The forex market is not governed by a single authority, but by a number of governments and non-governmental organizations from all over the globe. Let’s see how the Forex market is regulated in different countries.

The regulation of Forex in the U.S.

In the U.S. the Forex market is regulated by two main organizations, named National Futures Association (NFA) and the Commodities Futures Trade Commission (CFTC). An independent government body, the Commodity Futures Trading Commission (CFTC), oversees derivatives markets in the United States, including futures contracts, swaps, and options. Consumers are safeguarded against manipulation, unfair trading practices, and outright fraud as part of the organization's mission.

Except for newly regulated swap dealers and big swap players, for whom it sets capital rules according to Dodd-Frank, the CFTC normally does not directly regulate the safety and soundness of individual enterprises. Derivatives markets may do price discovery and risk offsetting because of the CFTC's monitoring. These investigators and prosecutors, as written on the page of Axiory FX brokerage, cooperate with other federal and state authorities to file criminal or other proceedings related to commodities fraud, such as foreign currency scams, energy manipulation and numerous frauds.

Another regulatory body in the U.S. in terms of regulating the Forex market is NFA. Eight years after the CFTC was established, the National Futures Association was formed. Federally mandated organizations such as the Commodity Futures Trading Commission (CFTC) are not part of this group (although it is overseen by the CFTC).

To engage in forex trading, you'll need to go via a third party, a broker-dealer. According to the Financial Industry Regulatory Authority, there are presently more than 3,700 broker-dealers in the country.

How Does Forex Regulation Work In The UK?

Firms in the financial services industry in the UK are regulated by the Financial Conduct Authority (FCA) (retail and wholesale). An autonomous organization relies solely on the money it collects from members.

Maintaining the integrity of the UK's financial markets and enforcing regulations on financial services providers are two of the FCA's primary responsibilities.

An important initial step for traders is to verify that the broker they want to engage with is licensed by an appropriate regulatory agency in the nation where they plan to do business. To settle a problem with your broker, you may go to the FCA for arbitration, if you are unable to do it yourself. If the FCA finds that a broker has violated the law or the FCA's principles and standards, the regulatory body may intervene and impose penalties or even revoke FCA authorization from the broker if the required requirements are not fulfilled.

It should be highlighted that the FCA, the Bank of England's Financial Policy Committee, and the Prudential Regulation Authority are all part of a new regulatory structure created by the Financial Services Act of 2012.

Regulation of brokers and exchanges provides more transparency, as well as recourse for those who suspect unlawful or unethical trading activities. It's vital to remember that the FCA has no jurisdiction over OTC Market brokers by definition.

Forex Regulation In The EU

Although some nations have one regulator, the European Union does not. However, this does not rule out the possibility of a regulatory framework in place to oversee European Forex companies. Regulation of financial market activity is a competence of each EU member state's organization. Regulators in other nations have their own regulations and standards based on their own laws.

MiFID II principles govern European forex regulation, which means that all EU member states are subject to the same set of laws and regulations. Forex brokers in the European Union (EU) are permitted to get a license in Cyprus and then "passport" that license to all EU countries. Note that each EU member state has its own unique set of laws and regulations that may sometimes take precedence over European Union directives.

The so-called “passporting” provision of the MiFID II rule is one of its most important components. This means that any Forex broker having a MiFID II license granted by a European authority is permitted to do business within the EU.

It is worth noting that the most popular country in Europe where a forex broker license may be obtained if your firm is seeking regulation there is Cyprus. The next countries to consider are Malta, Bulgaria, and Cyprus.