Europe’s Foreign Exchange Regulations

There is no central trading floor in the foreign exchange (FX) market, which is a global, decentralized market. That does not, however, imply that it is unregulated.

Despite the fact that forex regulation is a little milder than other financial markets regulations such as banking, insurance, and stocks, it is always developing and addressing any loopholes that may exist.

Investing in the currency market is relatively safe and regulated by local legal organizations in most developed countries.

Every nation has its own local regulator, but there is also an overhead regulatory organization from the European Commission and special legislation known as ‘MiFID,’ which controls the majority of the continent.

Some nations have their own financial regulators, but they have embraced EU norms, resulting in legislation that is remarkably similar.

Aside from that, investment businesses headquartered in the EU can provide broker and dealer services in any EU nation.

If a broker is registered and licensed in one of the European nations, he or she can migrate and operate in another European country while remaining subject to the laws of the home country. All of this will be explained in the parts following.

The Markets in Financial Instruments Directive (MiFID) is a law that harmonizes the regulation of the investment and financial services business in the European Economic Area (EEA). This legislation, which was developed in April 2004 and adopted in November 2007, regulates foreign exchange trading in Europe.

The goal of this regulation is to improve competition and client protection, particularly in the financial services industry.

The European Commission released MiFID 2 in October 2011, which tightens the rules on over-the-counter trading even further, taking into consideration recent developments including the 2008 financial crisis.

The essential components of the MiFID and MiFID 2 that have been implemented by financial regulatory organizations in all European nations are outlined below.

Passport – The European Union has developed an EU passport and treaty rights that allow financial services businesses registered in one EU nation to operate or be headquartered in any other EU member country.

It also includes Iceland, Norway, Lichtenstein, and Switzerland, which are all members of the European Economic Area (EEA).

Many corporations with headquarters in the world’s wealthiest countries set up operations in the EU’s poorer members to save money on operating costs.

As a result, if you trade with a broker based in Cyprus but registered in the United Kingdom, you are protected and dealing under UK financial rules.

After all, 54 of the 90 companies incorporated in London are based in Cyprus.

Because the relevant authorities of the home and host nations communicate and share information, the brokers are not completely unknown to the authorities in the host countries, making it even safer.

Categorization – MiFID mandates organizations, including brokers, to classify their customers, dividing them into two groups: retail traders and professional traders or investors.

In order to offer the proper sort of goods for investing/trading, they must have clear categorization systems and analyze the clients’ sufficiency.

This is why, when you open for an account with a broker situated in the EU, there is a part in the registration form asking what your income is and if you have trading experience.

Order processing – Companies should always inquire about this in the best interests of their clients. By law, brokerages must be updated quickly with the most up-to-date information and price changes in order to handle orders as efficiently as possible.

Ethics

Pre-trade — All brokers who employ order-matching systems in quotation markets, such as spot forex, must make all the best bids and offer prices available to the public.
Post-trade — Brokers/firms are required to make all deals, their pricing, and execution times available to the public.
Execution – Brokers must take all necessary steps to ensure that their clients receive the best possible order execution. This implies that the deal is done at the best possible price, with the fastest possible execution speed, and with the maximum probability of success.

Brokers that position their clients’ transactions against other clients or against their own book are known as systematic internalizers. In FX, these are referred to as market makers.’ Market makers are treated as mini-exchanges and are subject to all of the aforementioned regulations.

Regulators of the financial sector in European countries:

The following is a list of national financial regulators for each EU country:

• Germany – Federal Financial Supervisory Authority (BAFIN)
• Hungary – Hungarian Financial Supervisory Authority
• Italy – Commissione Nazionale per le Società e la Borsa (CONSOB)
• Malta – Malta Financial Services Authority (MFSA)
• Denmark – Danish Financial Supervisory Authority (Danish FSA)
• Sweden – Swedish Financial Supervisory Authority (Finansinspektionen)
• Estonia – Finantsinspektsioon
• Greece – Capital Market Commission
• Czech Republic – Czech National Bank
• Croatia – Financial Services Supervisory Agency
• Austria – Financial Market Authority (FMA)
• Portugal – Portuguese Securities Market Commission (CMVM)
• Ireland – Central Bank of Ireland (CBI)
• Spain – National Securities Market Commission
• Great Britain – Financial Services Authority (FSA), Financial Conduct Authority (FCA)
• France – Autorite des Marches Financiers (AMF)
• Netherlands – Authority for the Financial Markets (AFM)
• Lithuania – Securities Commission of the Republic of Lithuania.
• Bulgaria– Financial Supervision Commission of Bulgaria (FSC).
• Poland – Polish Financial Supervision Authority (KNF)
• Denmark – Danish FSA
• Luxembourg – Commission de Surveillance du Secteur Financier (CSSF)
• Cyprus – Cyprus Securities and Exchange Commission (CYSEC)
• Romania – Romanian National Securities Commission
• Slovenia – Securities Market Agency (ATVP)
• Switzerland – Swiss Financial Market Supervisory Authority (FINMA)
• Latvia – Financial and Capital Market Commission
• Belgium – Banking Finance and Insurance Commission (CBFA)

BOTTOM LINE

Because the enterprises operate in the financial markets, the forex market in the European Economic Area (EEA) is governed by a single set of laws.

MiFID is an EU directive that governs trading and investment in the European Economic Area. Although there are disparities across nations,

MiFID establishes the minimum standards. Some nations, such as Bulgaria, Cyprus, and Malta, merely fulfill the bare minimum, while others, such as the United Kingdom and Switzerland, go above and above.

Nonetheless, a trader trading with an EU-based broker is fairly secure thanks to EU financial regulation.

Transparency, execution, money segregation, and investor compensation laws are all covered by EU law, making an EU-licensed broker more trustworthy.