Although the news is still rather far off, it has already been confirmed that there will be major changes associated with the Forex industry beginning in May 2017. What is perhaps the most interesting observation is that the major currency exchange channels have only touched upon this topic briefly. While 2017 still appears to be a long way off, the truth of the matter is that months will pass very quickly and investors need to prepare themselves for regulations well in advance of these laws coming into effect. This is even more important when referring to online trading portals. So, what can we expect to occur in May?
Why Will Additional Forex Regulations be Put Into Place?
One of the issues with the Forex industry has been a lack of centralised oversight. Please note here that we are not referring to oversight in general. Instead, this is meant to address the rather disparate regulations associated with governing bodies such as CySEC, the FCA and the ASX (Australian Exchange Commission). There have been times when laws overlapped and other instances when certain stipulations could have been avoided based upon the jurisdiction of the brokerage in question. The problem is that such a “mottled” status enabled some unscrupulous brokers (and traders) to slip through the proverbial Forex cracks. In less than a year, these circumstances should no longer be an issue.
What is Changing?
There is no simple or discrete answer to this broad question. The main concept to keep in mind is that a blanket approach will take place in less than a year. According to trustworthy sources (1), the three primary intentions of these rules are:
- To adopt what is known as a “global” code of conduct and standards that supersede individual and regional jurisdictions.
- To enhance existing and relevant principles.
- To develop, promote and implement changes to the existing code when appropriate.
The main takeaway point here is that we should expect more robust levels of transparency. Another notable issue is that certain online brokerage firms could very well have to modify the ways in which they approach, inform and manage their clients.
A Blanket Code or a “Recommendation”?
One of the most interesting points to note here is that (as of the time that this article was written) this “code” represents less of a strict standard as it does a series of guidelines. It is said that it will be the responsibility of regional governments such as Cyprus and the United Kingdom to decide how these guidelines will be enforced. This presents a rather interesting situation.
Depending upon the latitude given (and this has not yet been clearly established), we are left to wonder how enforceable any potential violations will be. This is even more important if such infractions take place in a foreign country that does not adhere to the guidelines of the country where the online brokerage is located. Why is this the case?
We can look at this loose-fitting clause as a means to slightly reign in the Forex markets without detracting individual investors from benefiting from their inherent liquidity. To put it simply, the last thing that global governing bodies wish is for the regulations to be so strict that they take away from the appeal of the currency exchange marketplace. This seems to be more of a compromise between legislative bodies and law enforcement. It will be interesting to see if the proposals become more well-defined as the month of May draws closer.
How Does This Impact the Average Forex Trader?
If anything, this new legislation should benefit the average Forex investor; especially those who utilise such sites as CMC Markets. As CMC Markets is already respected, we should expect few changes in regards the their terms and conditions. The same may not apply to firms which have just been established.
Summarily, any modifications which take place are likely to occur behind the scenes as opposed to making the latest trading headlines. It is still important to keep up to date as more details emerge. Will the entire Forex landscape be fundamentally changed? Only time will tell.