Forex Regulations Should Focus on Pricing and not Leverage

Forex Regulations

Forex Brokers have been hit with wave after wave of new forex regulations from various regulators. CySEC, the Cyprus EU regulator, announced that they were eliminating bonuses and changing default leverage to 50:1. The new bonus rules are probably more aimed at binary options brokers to rid CySEC of its reputational problem as a regulator.

FCA took more drastic moves with a hard leverage cap of 50:1 and 25:1 for inexperienced traders. Like CySEC, FCA also instituted a bonus ban.

BaFin Proposals Were Not So Bad

BaFin the German regulator took a different approach. They instituted rules on negative balance protection. BaFin feels that the most significant risk facing brokers and their clients are a repeat of Swiss National Bank move which wiped out brokers like Alpari UK and did severe damage to FXCM.

Forex Regulations Ignore Price Transparency

Once again forex regulators have entirely ignored the issues of pricing and price transparency. This leaves it entirely open to the broker’s discretion. FCA will institute consolidated trade reporting with MiFID II, but this will be limited to ETFs, depository receipts, and shares.

Instituting some form of trade reporting for retail forex transactions would help many issues that up to now have remained overlooked. This will allow brokers to handle matters like trade disputes with greater ease and more confidence from the public. In equities and futures trading a broker can rely on time and sales data to address a trade dispute for a client.

Too Much Focus on Leverage

All too often forex regulations are focused on things like leverage and most recently the bonus ban. This is probably because these are more straightforward issues to address. Clients of a broker are probably more likely to file a complaint about not receiving a bonus than filling a complaint about a trade.

If the industry can establish standards in pricing and reporting this would go a long way in relieving the regulatory burden faced by both regulators and brokers alike.