Regulatory agencies all over the world are there to regulate the financial market and individual brokers. Data from the FBS broker review and test shows that regulatory agencies protect investors from abusive behavior or unlawful practices by their brokers. The brokers abide by the rules and regulations the regulatory bodies enforce.
This article will look at how these regulatory agencies work and their importance.
Table of Contents
What Does Regulating A Broker Mean?
Firstly, it is essential to note that regulatory agencies only regulate brokers in their jurisdiction. For instance, the Australian Securities and Investments Commission (ASIC) oversees all the investment services markets and securities transactions in Australia.
A broker must adhere to all the rules and regulators set by regulating body to be issued a license of operation.
The regulatory bodies are responsible for setting the rules for different trading aspects. The trading aspects include minimum capital, margin, balance, etc.
What Is The Importance Of Regulating A Broker?
Here are several benefits to choosing a broker authorized by a fully functioning financial service regulator:
● Safety of investment funds
Regulators set rules and regulations in place to guarantee the safety of investor deposits and funds. This is necessary, especially in the unlikely event of a broker going bankrupt.
● Fraud protection
The regulatory bodies oversee licenses issued to their brokers. This is to ensure that the brokers are closely monitored to discourage them from engaging in suspicious and illegal activities.
● Transparency
By law, brokers are required to be completely transparent to their clients. Regulators ensure that there is complete transparency between a broker and their clients. To avoid scams, choosing a binary options broker with a license from a regulatory body is in your best interest.
● Leverage
Leverage is placed to safeguard the client’s capital. Regulatory bodies limit the amount of leverage that a client is given. This is done because trading with leverage requires borrowing funds from your broker. If things go south, you are liable to lose more than your initial investment.
● Risk alerts
Regulatory bodies play an essential role in publishing trading and investment risk warnings. This is done when brokerages overinflate the profit you could make from a potential investment. Clients are shown risk alerts or notifications before signing up for a trading account or making investment decisions.
● Segregated funds
This ensures the separation of broker funds from client funds. This guarantees that your broker has the funds to pay you if you want to withdraw your funds.
● Rule compliance
Regulatory bodies play an essential role in ensuring brokers comply with all the rules and regulations established in their jurisdiction. This includes KYC and anti-money laundering processes.
● Financial compensation
Financial compensations are set in case anything unexpected goes wrong, for instance, in the unlikely event that your broker absconds.
Regulatory bodies provide benefits to clients and brokers. A broker licensed by a regulatory body is more trustworthy and reliable than one who isn’t. Additionally, regulatory rules and regulations apply to all licensed brokers with no exceptions.
What Happens When A Broker Does Not Abide By The Rules?
Certain measures are taken against brokers who violate the regulatory body’s rules. Firstly, the license issued to the broker is revoked. This tarnishes the reputation of the broker. Legal action can be taken against the broker in severe cases. The regulatory body also warns investors and potential clients by publishing local and international notices.
List Of International Regulatory Bodies
Regulatory bodies differ from one region to another. Some offer stricter rules, while some can be more lenient. Some of the international regulatory bodies include:
● SFC
The Securities and Futures Commission is a regulatory agency based in Hong Kong and oversees all online trading activities in Hong Kong.
● MAS
The Monetary Authority of Singapore is a regulatory agency that regulates several markets in Singapore.
● ASIC
The Australian Securities and Investment Commission oversees the online operation in Australia.
● BaFin
The Federal Financial Supervisory Authority regulates oversees the operations in Germany.
● FCA
The Financial Conduct Authority is Europe’s main regulatory body.
● MiFID
The Markets in Financial Instruments Directives is a European regulatory body that oversees the financial markets in European Union.
Several online financial regulatory bodies in Europe and North America play major roles in the regulation of brokers. Some of these regulatory bodies have rules and regulations that differ from the rest.
Conclusion
Regulatory bodies play a vital role in overseeing the functioning of the financial service markets and the broker-client relationship. It provides clients with the protection and confidence they need to invest their funds. Hence, it is beneficial to pick a regulated broker who adheres to the laws of regulatory bodies.
Before opening an account and depositing money, check your broker’s licenses, regulations, and, last but not least, the terms and conditions.
