Forex regulation overview


Forex (FX) regulation is crucial to both security and mutual trust between traders and operators. Companies operating from jurisdictions lacking in regulatory supervision are able to do so in an unfair and illegal manner without facing serious repercussions. Moreover, most unregulated operators do not provide their traders with even the most basic Client Money Protection principles. Regulation typically requires FX operators to keep client funds separate from the company’s own operating capital, thus preventing them from spending client money or using it to cover their own operational costs.

In order to avoid doing business with a disreputable company, it is widely recommended that traders work with operators who are regulated in a credible jurisdiction. A recent study has revealed that FX regulation can be a challenging process as the regulatory environment differs significantly across various jurisdictions. The most recognised FX regulatory bodies are the Cyprus Securities and Exchange Commission (CySEC) and the Financial Conduct Authority (FCA).

Forex and Contract for Difference (CFD) regulation in Europe

Though it is common to see FX operators and other currency service providers claiming to be European Union (EU) regulated, the region does not have a single united regulator. On the contrary, each EU member country has individual rules and legislation concerning the regulation of financial services.  For example, FX operators based in the United Kingdom fall under the regulation of the FCA, while operators based in the Republic of Cyprus are regulated by CySEC.

CySEC and FCA both comply with the Markets in Financial Instruments Directive, commonly known as MiFID, the only comprehensive governing principle encompassing all EU national regulators. MiFID is the best example of the EU’s commitment to forming a single market for financial services, e.g. providing the ability for FX operators (or other financial companies) from one EU country to do business across the European Economic Area (EEA). Companies claiming to be EU regulated, therefore, are most likely operating out of a country, which follows MiFID rules.

In other words, it is possible for an FX operator regulated in the Republic of Cyprus to attract clients from other EU/EEA countries without obtaining additional local regulatory licenses. For the same reason, the largest stakeholders in retail FX choose to operate as an EU subsidiary, which allows them to advertise their services to more than 500 million EU residents.

Though MiFID allows FX operators regulated in one EU member states to do business across the EU and EEA, the scope of FX regulation still varies among the various countries, meaning regulation in certain territories could be more complex than in others.

MiFID offers traders a set of important protection measures. One of the most popular is the introduction of mandatory investor compensation funds meant to protect retail customers in the case of brokerage/FX operator bankruptcy, which ensures that the deposited funds (a specific amount varying on a case-by-case basis) will be returned to the trader. It also outlines the minimum capital requirements and the mandatory segregation of client and FX operator funds, all of which guarantees traders with a decent level of protection. Other sections of MiFID are geared towards ensuring that traders receive the best possible services and are treated fairly by their operators.

Forex regulation internationally

The FX market operates globally with immense geographical dispersion. As with the various regulatory bodies of EU member countries, countries around the world operate within this industry under their own rules and legislation. FX companies make decisions on where to base their operations on the basis of each jurisdiction’s benefits and drawbacks, which can vary depending on local policy.


Surprisingly, the regulatory framework of the United States of America is considered to be one of the world’s strictest. US residents and citizens are only permitted to operate with FX operators regulated by the Commodity Futures Trading Commission (CFTC) and National Futures Association (NFA), meaning companies without the required CTFT/NFA regulation are not allowed to target US-based traders.

Transparency is one of the key factors for US regulators and thus the US FX operators must publicly release a wide range of data, e.g. the number of genuine accounts registered with the company, profitability of the firm’s traders, etc. On the one hand, the USA’s regulatory framework has created a very transparent and heavily regulated marketplace, but on the other, it has forced some FX operators to leave the US market.

New Zealand

In 2013, New Zealand’s Financial Markets Authority (FMA) announced a sizeable increase in the regulatory requirements with regards to doing business within this jurisdiction. In the past, foreign companies registered as Financial Service Providers (FSPs) enjoyed reduced regulatory requirements, allowing them to operate within New Zealand at limited cost. The recently released regulatory framework, however, dramatically increased the minimum requirements for FSPs, including:

  • NET assets of 1 million NZD or 10% of average revenue
  • A specific management team responsible for regulation, risk management and compliance
  • A set of appropriate standards for the engagement of new clients
  • Section with information about dealing with policies and conflict of interest
  • Set of standards for hedging internal risk and client margin levels
  • Rules for the segregation of client funds
  • Proper maintenance of customer acc. info records

Several indicators have suggested that the new requirements will result in many FX operators giving up their FSP registration and relocating to the EU, where MiFID requirements are not as strict as the new regulations implemented in New Zealand.


The recently updated regulations proposed by the Israeli Securities Authority (ISA) are similar to regulation found elsewhere in the world.  The rather strict limitation on maximum leverage offered to traders is something that is likely to cause concern among FX operators. Furthermore, the newly proposed regulations will affect regulated companies in other jurisdictions, who will have to obtain an ISA license in order to do business with traders based in Israel. Some of the newly introduced proposals still require ISA approval, but it seems likely that FX and CFD trading regulations will be implemented shortly.


A very popular destination for FX operators, Belize combines a tax haven and a very attractive, convenient regulatory framework. The International Financial Services Commission (ISFC) is responsible for the financial regulation in Belize. Though it is fairly simple to obtain the required license, the regulatory law could be considered more serious than in other popular jurisdictions. Regulatory laws offer traders several basic protection schemes and require FX operators to have a certain level of accountability.

The total cost of incorporating and becoming regulated in Belize amounts to $30-40 thousand, which makes the country exceedingly attractive for many start-ups willing to become a regulated entity while avoiding significant costs. It is important to note that the high costs of EU regulation often prevent new companies from entering the market.


Though other jurisdictions may offer advantageous terms, operating out of Europe provides access to key markets. Research has indicated that a significant number of FX operators choose to be based in the Republic of Cyprus. The sections below outline the reasons why so many brokerages and FX operators choose Cyprus above other jurisdictions as the base for operations.

Low taxes

One of the most obvious benefits of being based in Cyprus is the very low tax rate. In fact, Cyprus boasts the lowest rate of corporation tax in the EU (currently a flat 12.5 %). This makes Cyprus a very attractive destination for FX companies looking to significantly reduce their overall tax payments.

EU membership and MiFID

As mentioned previously, MiFID provides a minimum regulatory framework, which must be adopted and observed by all EU/EEA countries. MiFID also supports the passport principle introduced by previous EU law. This principle means that a company regulated in a country where MiFID applies can easily offer its services to residents/citizens of other EU/EEA countries.

As Cyprus is a member of both the EEA and the EU, Cyprus-based FX operators can offer their services to any of the following EU/EEA countries: Austria, Belgium, Bulgaria, Croatia, Czech Republic, Denmark, Finland, Sweden, Republic of Cyprus, Estonia, Lithuania, Latvia, France, Germany, Greece, Hungary, Ireland, Italy, Luxembourg, Malta, the Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, the United Kingdom; Iceland, Liechtenstein, Norway, and Switzerland.

While MiFID provides a minimum standard of financial regulation, the framework may differ depending on the specific region. For example, if a FX operator goes bankrupt, Cyprus insures retail customer funds up to EUR 20000, while in the UK, funds are insured up to GBP 70000.

Large financial sector and skilled workforce

Low tax rates and a favourable business environment have resulted in Cyprus becoming one of Europe’s largest financial hubs. A large retail brokerage requires a comprehensive set of specialists, including risk managers, compliance experts, traders, etc. As Cyprus demonstrates a large and advanced financial sector, any FX operator can easily recruit qualified employees without much hassle.

Sophisticated and modern Internet and telecoms infrastructure

Despite not having the strongest Internet infrastructure, Cyprus has made significant improvements to its telecoms infrastructure over the past decade. Moreover, the government of Cyprus is currently making fibre-optic broadband available nationwide. It is already available in a number of urban locations, such as Nicosia, Larnaca and Limassol.

Considering the advantages offered by becoming regulated under CySEC, Cyprus can be considered the most favourable jurisdiction for FX operations in Europe. This regulatory body is well-known amongst consumers, ensuring that traders feel secure in collaborating with FX brokerages regulated within Cyprus.

ECommPay, an experienced payment services provider with offices across Europe, including Cyprus and the United Kingdom, assists e-Commerce merchants and FX brokerages in obtaining the regulatory licenses required for operating in various jurisdictions. Intimately familiar with CySEC and FCA regulatory practices and requirements, ECommPay advises e-Commerce clients on legislation and policy, helping ensure that merchants operate within the legal framework.

Having closely monitored regulation across the world, ECommPay predicts that many FX operators doing business within jurisdictions with unfavourable regulatory practices will be keen to either migrate to areas with lower costs and increased benefits or to continue operating as unlicensed brokerages. As a result of New Zealand’s recently introduced regulation practices, for example, it is likely that a number of companies will be looking for a regulator in the EU.

FX operators and brokerages entering new jurisdictions will require consulting from financial providers experienced in working with and within the parameters of local regulations. ECommPay believes that companies interested in entering the EU marketplace and doing business across various member states should consider basing operations in the Republic of Cyprus and obtaining a CySEC license.

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