We have already talked about how to recognize scam brokers and we know how important the issue of regulation for traders is because they need to feel protected and reassured about the safety of their funds.
We know that the regulation is not mandatory to the choice of broker and that not all the non-regulated are scam. In fact, the issue of regulation may be perceived differently depending on the country.
For example, it could be very important for American traders that his broker is regulated by the NFA (National Futures Association), but this does not have the same relevance for a Japanese trader.
So, it’s no surprise if a reputable broker is not regulated. Regulation is important, but we need to understand how it works and how it affects our security.
We need first to point out one concept. Regulation is not because of the broker, but is because of the asset you are going to trade.
Example: binary option are considered financial assets for Europe and the only ones authorized to offer these instruments are financial companies especially regulated under MIFID (Markets in Financial Instruments Directive). Since most of the companies that propose binary options are registered to Cyprus, they need the authorization of CySEC (Cyprus Securities and Exchange Commission). Asking for this authorization makes the broker regulated for the European Union but if he wants to operate into other countries he will need the authorization from other authorities such as FSA for the UK or NFA for the US.
The thing that differentiates brokers regulated by those not is the lack of guarantees. Guarantees for the account deposit and also for payments because client funds are separate from the broker so if the broker goes bankrupt, client’s deposits are safe.
Another difference lies in the obligation of following the rules and comply with certain standards. A regulated broker is continuously monitored by the authority from which he received the license. This way the client is protected doubly, because in case of any problems, he can control himself with the regulation authority.
For a broker, proving to be a regulated broker is also a sign of transparency that translates into confidence of its clients.
Of course we do not want to say that all not regulated brokers are scam because operating under a reduced legal responsibility, it does not mean to not have an appropriate ethics. We should always remember that it is the interest of brokers to act with prudence and respect of the laws.
Here a list of the major authorities in the world for regulation:
United Kingdom: Financial Services Authority
United States: Financial Industry Regulatory Authority, Inc. – New York Stock Exchange – National Futures Association and others
Cyprus: Cyprus Stock Exchange Commission
European Union: Markets in Financial Instruments Directive
Australia: Australian Securities and Investment Commission
Japan: Financial Services Agency – Japan Investor Protection Fund and others
Singapore: Licensed clearing member of the Singapore Exchange
Swiss: Groupement Suisse des Conseils en GestionIndépendants – Swiss Federal Department of Finance and others