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Hi everyone

This morning I just answered a comment from Mr. B. Mayo that I think should be of easy access to all traders that visit our site FXstreet.com wondering what is the most trustful Forex Regulatory Agency in the world that will monitor/supervise the activities of your Forex Broker and would back you up in case of a dispute with it.

Mr. B. Mayo wrote:

“It seems very clear that regulation differs greatly between one country to another, especially when you start to compare continents. For example, we are all aware that regulation in some countries is less demanding than in others, if for example we compare what is required to open a Forex brokerage in Malta or Cyprus, we know that it is not as demanding as if you were to open in the UK, US or Switzerland. But in what way exactly? What are the actual requirement differences between these nations?? Granted, as you say, if you are regulated in the UK as well as in either Malta or Cyprus…you are a member of MiFID. Also, my understanding is that the MiFID regulations are more directed to rules for trading, and not towards such things as financial requirements…that is more down to each countries regulator.

So in short Francesc, is there anywhere,or has anyone, actually compared “by country” what is actually required from brokers to set up legally?”

My answer was the following - I’m editing the response to make things clearer for all the readers:

Dear Mr. Mayo

From what I know from speaking to the experts in the Forex field, the toughest regulator in the World at this time is Australian ASIC, followed by British FSA and the United States NFA.

Note: The US NFA failed to rule the Forex market during many years as it was mostly an unregulated market, but the agency along the CFTC is putting things in order and we will see more in the next few months, so we can already consider them one of the top supervisors in the world at this time.

Japanese FSA and Switzerland’s FINMA have experience in the field and their supervision should be trustful, even though I do not like the way FINMA is dealing with Crown Forex S.A liquidation.

We at FXstreet.com also trust Nordic countries regulators, along top European countries like Germany and France. At this time I know little about Italian’s Commissione Nazionale per le Società e la Borsa, while Spain’s Comision Nacional de Mercados de Valores know nothing about Forex.

At this time, we do not accept European Union’s Markets in Financial Instruments Directive - MiFID passport brokers in our brokers list. We do accept them as advertisers as long as we do not have proves that point out to illegal or unethical behavior from the company.

That rule has nothing to do with the reliability or the capacity of doing business of the Forex Broker firms based in most of the European Union countries. Many of MiFID passport firms are doing a very good job and are perfectly reliable, the thing is that we just do not trust their country’s regulator capacity to, first understand the market and, second to rule and supervise efficiently the Forex Brokers activities that are based in their countries.

A good example of that lack of trust can be found in this blog post I made last April 2010:

CySEC Issues a Warning Against ForexYard After UK FSA Did 6 Months Ago… What Were You Waiting For?

The differences between regulators are huge. They go from daily surveillance of brokers authorities - serious regulators even put their people to work in the Forex Broker’s offices - to paperwork, serious regulator’s paperwork is huge and tricky - one broker CEO told me once that had to flew all the way from the US to London just because the drawers they bought were not big enough to store the files of the clients, so the regulator wanted to measure it once again right in front the person in charge to decide what to do next - to capital requirements, to even physical residence.

There are some countries like New Zealand that the directors can be non-resident and run a financial business in the country without even having a physical “real office” in the country. Silly right?

Note: In this post I just expressed my personal view. As always, if there was any inaccuracy, I’ll be delighted to amend it right away.

Francesc

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