Foreign Exchange Dealers Coalition - Government and Self-regulation

Government and Self-regulation

For many years, the foreign exchange industry was unregulated in the United States. Regulation was long overdue, especially in light of the fact that foreign exchange trading had been regulated in such locales as Hong Kong and London for over a decade (citation?). Some rules were formally put in place when the President signed and Congress passed the Commodities Futures Modernization Act in December 2000, which regulated the retail foreign exchange industry for the first time.

In the U.S., forex firms are members of the CFTC and the self-regulating National Futures Association (NFA), operating under the same guidelines set forth for FCMs in the futures brokerage business. Other developed countries have effectively regulated the OTC foreign exchange market, and each member believes that the U.S. can do this as well.

On a regular basis, all forex dealers submit financial reports to its regulators and are subject to lengthy regulatory audits covering everything from marketing practices to employee training regimens. In addition, many of these long-established regulatory bodies extend specific regulations solely to retail forex dealers, such as higher capital requirements, disclosure statements and the requirement that all dealers disclose to customers that their funds may not be safe in the event of bankruptcy.