There is no central market and no global regulatory agency responsible for monitoring the activity of the forex market.
Regulation is left to each country. In the United States, the Commodity Exchange Act,
together with the Dodd-Frank Wall Street Reform and Consumer Protection Act and the Food, Conservation, and Energy Act of 2008,
provide the U.S. Commodity Futures Trading Commission (CFTC) with broad authority to register and regulate entities
wishing to serve as counterparties to, or to intermediate, retail foreign exchange (forex) transactions.
New regulations that came into effect October 2010 require the registration of counterparties offering retail foreign currency contracts
and who are not subject to oversight by another regulator as either
futures commission merchants (FCMs) or retail foreign exchange dealers (RFEDs), a new category of registrant,
and be a member of the National Futures Association (NFA).
Persons who solicit orders, exercise discretionary trading authority or operate pools with respect to retail forex are also
required to register, either as introducing brokers, commodity trading advisors, commodity pool operators (as appropriate)
or as associated persons of such entities and to become members of the National Futures Association.
“Otherwise regulated” entities, such as United States financial institutions and SEC-registered brokers or dealers, remain
able to serve as counterparties in such transactions under the oversight of their primary regulators.
FCMs and RFEDs are required to meet strict financial standards including capital adequacy requirements. On a regular basis, FCMs are required
to submit financial reports to regulators. These standards are enforced by the NFA which has the right to fine firms and/or
terminate an FCM's regulatory status for violations. All retail forex counterparties and intermediaries will be required to
distribute forex-specific risk disclosure statements to customers and comply with comprehensive recordkeeping and reporting requirements.
CONDUCTING A BACKGROUND CHECK
When trading in the retail forex market, individuals should only deal with a regulated entity.
Registration status and NFA membership status of a particular firm or individual can be easily and freely checked by using the
Background Affiliation Status Information Center (BASIC) of NFA’s web site at www.nfa.futures.org/basicnet/
The National Futures Association also keeps records of all formal proceedings against Futures Commission Merchants and other
registered members. With a couple clicks of
the mouse, a trader can find out if the firm has had serious problems with clients or regulators.
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