Who Regulates Foreign Exchange?

Who regulates foreign exchange? It is a very frequently asked question. There are certain organizations that have the authority over the retail off-exchange foreign exchange markets. For instance, the Commodity Exchange Act (CEA) permits the trade of OTC forex futures and alternatives to retail customers if, and only if, the opposite party (the person on the other side of the transaction) is a legally regulated entity. These regulated entities include the following: financial institutions, such as banks and savings associations, registered broker-dealers and assured of their members, registered futures commission merchants (FCMs) and certain of their associates, definite insurance companies and their regulated members financial holding companies, and investment bank holding companies.

Under the CEA, the power of terminating the unregulated foreign exchange entities (particularly, FCMs) is there with the CFTC. There is the power with CFTC to take necessary steps or action against registered FCMs and their associates for defying the anti-fraud and anti-manipulation requirements of the CEA in link with OTC transactions in foreign exchange that involves the trade customers, but the CFTC cannot implement laws to regulate these transactions. Hence the CFTC acts like one of the regulators in foreign exchange. NFA has its laws to provide security to its customers in the retail off-exchange foreign exchange market. As per the laws of NFA, a foreign exchange dealer FCM should take the liability for the activities of unregulated entities that solicit retail customers.

Furthermore, there is a need of NFA which is one of the foreign exchange regulator rules the foreign exchange dealer FCMs to: scrutinize higher standards of viable honor and just and unbiased principles of buying and selling in link with the trade of foreign exchange business. However the foreign exchange rules of NFA are not applicable to all the FCMs and their associates. Therefore, it should confirmed first whether or not the dealer is NFA regulated or by any of the regulators in foreign exchange.

The majority of foreign currency exchanges are considered unregulated. There is no single entity that control over the whole industry. There are no central foreign exchange regulators, but rather a mass of different transactions taking place all across the globe. All these transactions generally produce comparable prices as traders would quickly take advantage of any cost detach between the different markets. Few of the products such as currency futures, are synchronized by the CFTC. But for the majority part, regulation is small or non existent which leads to some problems.