AuthorBy Jeffrey Cammack
Updated: April 19, 2021

Checking a broker’s regulatory status is a similar process for all the major regulators and only takes a couple minutes (and could save you a lot of money and heartache!)

In this section we will have a brief look at the most common regulators in the Forex industry and how to find out if a broker is regulated. Once you are finished reading this section you will be able to check if a broker is licenced with all the following regulators:

Securities Commission of Malaysia (SMC)

As far as regulation of Forex brokers is concerned, the Malaysian regulatory setup is in its infancy and hampered by decades of paranoia over the strength of the Ringgit. There is still some confusion over who is the actual regulatory authority for Forex brokers: The Bank Negara Malaysia is responsible for the Ringgit, while the Securities Commission of Malaysia oversees and licenses financial companies – but neither company holds responsibility for regulating Forex brokers.

To add further confusion, many Forex brokers operating in Malaysia are regulated by the Labuan Financial Services Authority (LFSA), the regulatory body for the Labuan International Business and Financial Centre (LIBFC). The LIBFC, based on the island of Labuan off the Borneo coast, was created in 1990 by the Malaysian government as a free trade zone and financial centre. Labuan is widely seen as a business-friendly environment, anchored by a simple and attractive tax system and the LFSA has a robust, modern and internationally recognised legal framework.

In reality, most Forex brokers operating in Malaysia remain regulated offshore. It is easier to comply with local regulations by saying that retail Forex trading with an offshore brokerage is considered foreign investment. Since most Forex trading in Malaysia does not involve the Ringgit, the regulatory agencies tend to ignore the vast majority of Forex brokers and traders in the country.

As long as you are not physically exchanging the Ringgit for foreign currency, or asking others to do the same through your business, the Malaysian regulatory agencies will not get involved.

This lack of local regulatory oversight leads to another problem though: there are many Forex brokers operating in Malaysia that are poorly regulated, or not regulated at all, and many of these are fraudulent. Therefore, it is important to make sure that any broker you choose to work with is regulated by one of the major international regulatory bodies (such as ASIC, CySec or the FCA).

Australian Securities and Investment Commission (ASIC)

The Australian financial regulator has an excellent global reputation and is continually active in combatting broker fraud and manipulation. Many of the most respected Forex brokers in the world are Australian, and ASIC is an important part of their reputation for trustworthiness.

Use the ASIC search tool here: https://connectonline.asic.gov.au/ to check a broker’s regulatory status with ASIC.

Unfortunately, detailed information on each company in the ASIC database is only available via purchase. See below for Pepperstone’s ASIC entry:

Pepperstone-ASIC-Entry

Like the FSCA, all ASIC regulated brokers are required to publish their ASIC licence on their homepage. We have had a few reports of unregulated brokers claiming to be based in Australia and using the names of regulated financial companies, so it is always best to check thoroughly.

UK Financial Conduct Authority (FCA)

The UK’s Financial Conduct Authority is seen as the best financial regulator in the world. It’s no surprise that their search function is the easiest to use and the most thorough, you can access it here: https://register.fca.org.uk/s/.

Like other major regulators, all brokers with an FCA licence are required to publish their FCA reference number on their website, here is AxiTrader’s FCA number at the bottom of their website:

AxiTrader-FCA-Number

AxiTrader is the trading name of a larger financial group, but in this case, the FCA licence holder is AxiCorp Limited. Using the FCA reference number, we can search the FCA’s database of registered companies and find AxiCorp Limited’s entry:

axitrader-fca-entry

Notice that the FCA also warns of unregulated brokers that are attempting to use AxiCorp’s identity to scam unwary traders.

Cyprus Securities and Exchange Commission (CySEC)

CySEC is the foremost regulator in the EU and Cyprus has a long history of regulating online Forex brokers. As a European regulator, all brokers with a CySEC licence must abide by the EU’s MiFID II legislation. Among other things, this requires limits on leverage and the removal of trading bonuses.

CySEC’s broker search tool functions much like the FCA’s and all CySEC licenced brokers are required to publish their licence number on their website. CySEC’s database and search tool can be found here: https://www.cysec.gov.cy/en-GB/entities/investment-firms/cypriot/

Below, we can see the entry for AFX Capital Markets, which went bankrupt last year and is suspected of several wrongdoings, including using client money to cover operational costs.

AFX Capital Markets CySEC Entry

CySEC make it clear that AFX Capital Market’s licence has been suspended. A clear sign not to trust a broker.

Other Regulators

There are many other small regulators around the world, and Forex brokers will hold licences with them to avoid the restrictions placed on them by ASIC, CySEC and the FCA.

Commonly seen small regulators include the Seychelles FSA, the Mauritius FSC, the St Vincent and Grenadines FSA, the Belize IFSC and the Bahamas SCB. While being regulated by one of these smaller regulators does not mean that a broker is bad, it does mean that traders are not as well protected.

The best and most trustworthy brokers are regulated by at least one of the three major regulators (FCA, CySEC, ASIC) or the FSCA. It is common for brokers to have multiple regulators, one for each region in which they operate. A good example of this is FXTM, below is a screenshot from the bottom of their website:

We can see that FXTM and its subsidiary companies are regulated by CySEC, the FSCA, the FCA and the Mauritius FSC. This allows FXTM to offer its services to traders all over the world.

IOSCO Investor Alerts Portal

There is one final tool which you might find useful. The International Organization of Securities Commission (IOSCO) maintains a list of every investor warning issued by every regulator in the world, and this is available here: https://www.iosco.org/investor_protection/?subsection=investor_alerts_portal

This list contains a huge number of entries so the easiest way to search is using the keyword option, see below:

IOSCO Search

We recently had a question from a trader regarding a broker called RedfordFX, they had contacted him out of the blue and he was suspicious. So, let us run a search for this company using the IOSCO keyword tool.

IOSCO RedfordFX

As you can see, the CNMV (the Spanish financial regulator) released a warning about RedfordFX on August 3, 2020. Obviously, not a broker to trust!

If you are concerned about a broker for whatever reason, do check this database before you part with any funds.

Share your knowledge

Stay updated

This form has double opt in enabled. You will need to confirm your email address before being added to the list.

Featured Brokers

Trading Forex and CFDs is not suitable for all investors and comes with a high risk of losing money rapidly due to leverage. 75-90% of retail investors lose money trading these products. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

Close
>