Forex Industry Regular Warns Against Regulatory Gap

The Foreign Exchange Professionals Association (FXPA) has called for urgent address regarding differences in foreign exchange (FX) regulations. In a white paper, the watchdog stated that there is a wide difference between the regulated and unregulated FX derivatives trading platforms. According to the watchdog, the present situation, if allowed to continue, may pose a risk to customer protection and market integrity.

FXPA Points Out Increasing Risks Of Regulatory Differences In The FX Derivatives Industry

FXPA sounded a warning on the increasing risks of having competition between regulated FX derivatives trading platforms and their unregulated counterparts.

According to the watchdog, those unregulated platforms usually carry out their activities with minor oversights. This offers benefits such as lower fees and higher leverage. However, the services are offered with high risk to the security of customers.

FXPA said the wider regulatory differences between these two types of platforms can be exploited because other FX trading platforms would want to take advantage of the opportunity.

For the regulated platforms, the compliance requirements mean they will be dealing with higher operational costs. They are also following investor protection measures, reporting, and market surveillance.

The regulated firms also follow stringent rules on impartial access, conflicts of interest, and transparency. These measures they are taking to stay maintain their regulatory standards are taking some funds away from them, unlike the unregulated platforms.

The FXPA stated that unregulated platforms are always raising issues concerning market integrity and fairness.

The Watchdog Suggests A Uniform Rule Between Regulated And Unregulated Platforms

FXPA also noted that the unregulated platforms could be attracting more customers because they are benefiting from cost savings linked to non-compliance. As a result, the gap between the regulation of the FX venues could have a massive impact on price recovery and market liquidity.

The watchdog says the unregulated platforms are having it easier in the market while the regulated ones are spending time and effort to operate within the confines of the law. It suggested that policymakers need to come up with a system that merges both types of FX derivatives platforms under a single policy and regulation.

FXPA added that policymakers should consider how the operational system of these unregulated platforms impacts global competitiveness, market development, and risk management.

The watchdog also stated that policymakers and regulators can reduce the cost burdens on regulated entities to support them. It suggested that they can reduce their costs allowing greater equivalence for platforms carrying their operations across multiple markets. They can also normalize regulatory standards across jurisdictions to give room for a level playing ground.