Forex watchdog urges policymakers to address regulatory issues in the FX sector

The Foreign Exchange Professionals Association (FXPA), the regulatory body overseeing the forex space, recently issued a white paper in which it urged policymakers to address certain irregulatities in the FX space. According to the paper, there are major regulatory disparities between unregulated and regulated foreign exchange derivatives trading venues.

Forex Watchdog Warns Against Unregulated FX Platforms

The paper has raised awareness about the current landscape in the forex sector, urging policymakers to react, as the current situation may pose risks to customer protection and market integrity.

The FXPA stressed that there is a growing presence of unregulated FX derivatives trading platforms that are competing with regulated ones. The unregulated counterparts typically operate with minimal or even zero oversight, which allows them to offer benefits like high leverage or lower fees.

However, at the same time, they also do not protect customers adequately. “The longer regulatory gaps between regulated FX derivatives trading venues and unregulated FX derivatives trading venues can be exploited, the more other FX trading venues will seek to replicate their success,” the FXPA insisted.

Commenting on the differences between regulated and unregulated platforms, the association noted that regulated venues tend to face higher operational costs due to compliance requirements. This includes things like market surveillance, investor protection measures, reporting, and alike. There are also strict rules on transparency, impartial access, conflicts of interest, and more, that regulated platforms follow, while unregulated ones typically do not.

Not only does this put regulated firms at a disadvantage, but it also puts the users of unregulated platforms at risk. The paper added that the presence of unregulated FX derivatives trading venues also enables the possibility of regulatory arbitrage for forex markets. “These dynamics raise concerns about fairness and market integrity around the operation of unregulated FX derivatives trading venues,” the document said.

FXPA Wants Policymakers To Support Regulated FX Platforms Further

Commenting further on the issue, FXPA suggested that unregulated venues may benefit from cost savings associated with non-compliance, which lets them offer more attractive terms to the users, which could have a major impact on market liquidity and price discovery.

With that being the case, the Association wants global regulatory bodies to consider the unregulated FX derivatives venues and their impact on the market. The paper also claims that these platforms have a major impact on systemic risk management, market development, and global competitiveness.

Along the way, the paper said that the regulators also might want to consider supporting regulated entities further by reducing regulatory cost and similar burdens by normalizing standards across jurisdictions, and allowing greater equivalence for entities that operate in a variety of different markets.