Over the past couple of years, Forex Brokers have seen a dramatic change in the regulatory landscape, especially in Europe. The ESMA (European Securities and Markets Authority) has recently proposed new forex regulations that include leverage changes reducing leverage to 30:1. The same proposal would also eliminate the ability for Forex Brokers to offer bonuses as an incentive to new clients.
Then there is MiFID II also known as (Markets in Financial Instruments Directive) which has been seven years in the making and includes over 30,000 pages of new regulations. The scope of these regulations will affect mid-sized to smaller forex brokers the most. Price transparency is a crucial component of the new rules. New reporting requirements translate to adding compliance and reporting costs. Introducing Brokers and affiliate marketers will also be significantly affected by the new regulations. The lost revenues from IBs and affiliates can be a substantial part of the smaller to midsized brokers business and could impact the bottom line.
The regulatory situation doesn’t look much better in the Asia Pacific region. ASIC which is the primary retail forex regulator has approved only one broker in the past three years. Abuses on the part of non-compliant Chinese brokers has led to the ASIC closing its doors to new retail forex brokers.
In the United States, there are currently two players in retail forex. Oanda and Gain Capital or Forex.com. Several brokers are now in the process of returning to the U.S. market in spite of the hefty $20 million net capital requirement. These brokers have determined that the U.S. market has now become more attractive than in Europe. The number of returning brokers might be limited to a handful, but it marks the first increase in the U.S. market since the regulatory changes took effect back in 2008. We are not sure if this will be a trend in the next year, but it is an indication that Europe and the UK are no longer the preferred jurisdiction for Forex Brokers.