Forex trading in UK: Should UK still refer to the MiFID?

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UK is going through the process of brexit with London remaining the most gravitational financial services hub on EU but what is going on about the regulation of the forex trading in the UK?

If you decided to open a forex trading account it is not possible to over-stress the importance of trading with a ‘regulated’ broker that abides by rules governing financial markets. Regulated status forces brokers to provide a significant layer of protection to both the firm and their clients, on an ongoing real-time basis.

Brokerages operating from jurisdictions which lack any real regulatory oversight can get away with very questionable behaviour to say the least. Some ‘unregulated’ brokers can be rather unscrupulous and fail to provide an adequate level of service or protection for their clients – at best. At worst, they can disappear over the horizon with your money without a scrap of paperwork for a trail.

If choosing the most suitable broker for you, it is therefore highly recommended to opt for a broker with regulated status. If a broker is regulated in more than one country, this tends to be a bonus because it adds yet a further layer of oversight and accountability the broker must comply with.

Regulation of forex trading in UK or other countries typically requires brokerages to keep client funds separated from the firm’s operating capital, this prevents rogue firms from embezzling client money or using client funds to pay operating costs.

In this article, we lay out the current regulatory framework of the market of forex trading in UK and provide some comparisons. Take note that regulatory rules & regulations in all parts of the world are periodically updated, which means any broker’s regulated status is subject to change – and that you should keep your eye out for latest announcements from established regulatory agencies in your country, and where your chosen trading/investment account is held.

The regulation of forex trading in UK is carried out at the national level by a domestic regulatory agency that is to say the Financial Conduct Authority (FCA) based in the UK. The market of forex trading in UK has to follow the regulation by the Cypriot Securities and Exchange Commission (CySEC), Germany’s tongue-twisting  Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin for short), amongst many others.

Each European country has its own regulator to oversee their domestic markets, there also exist intra-national regulatory agencies that provide oversight on a regional level.
What ties all these national regulators together is the Markets in Financial Instruments Directive better known as MiFID.

MiFID is the Markets in Financial Instruments Directive. It has been applicable across the EU since November 2007 and sporting several tweaks over the years, remains a cornerstone of the EU’s regulatory apparatus, aimed at improving financial markets’ competitiveness within the EU by way of a single market. The EU’s overarching idea is to unify and harmonise as much European legislation as possible with the ultimate end-goal of overseeing and regulating the entire region through the European Central Bank (ECB).

The MiFID, is a good example of the European Union’s commitment to a ‘common market’ for financial services. The core idea is to allow companies in one country to be able to do business in any other within the European Economic Area. This is what the UK has signed up to “Brexiting” in 2016, and continues to dawdle in executing its exit strategy at the end of 2016 – precisely because the UK’s City of London is the most gravitational financial services hub on the entire continent (and the world) and obviously the market of forex trading in UK is huge as well.

One of the central tenets of the Markets in Financial Instruments Directive is that of outbound passporting. When brokerages state that they are EU regulated, what is meant by this is that they are regulated in a country which is signed up to the Markets in Financial Instruments Directive (MiFID). This allows for brokerages regulated in one European Economic Area (EEA) country to then offer their services to clients throughout the EEA.

Despite the ability for a brokerage regulated in one EEA country to do business across the European Economic Area, the scope of Forex regulation varies between member countries with regulation in some jurisdictions being tougher than in others. This is due to the fact that MiFID only aims minimal harmonization, introducing a minimum level of regulation which must be implemented by domestic European regulators. This has seen certain domestic regulators go above and beyond the minimum requirements as set out by MiFID, while other countries have stuck very closely to the bare minimums required by the European directive.

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