How is Forex regulated in Australia?

With over $5 billion traded daily, the forex market is by far the largest and most liquid market in the world. With these high trading volumes comes the need to maintain fairness and ethical practices. So who polices this 24-hour market? Read on to find out how the Australian forex market is regulated.

Who regulates forex in Australia?

The Australian forex market is under the regulation of the Australian Securities and Investments Commission (ASIC). The involvement of this regulatory authority in the Australian financial markets dates back to the early 1990s. All ASIC regulated forex brokers must adhere to strict regulatory guidelines aimed at providing fair trading standards and preventing financial malpractices.

Why is regulation important?

The biggest risk of non-regulation is illegal activity and fraud. With an increase in investment scams, regulation by a reputable authority minimises the risk of currency-related swindles and fosters a sound financial market.

ASIC requirements

The following are some of the top requirements for ASIC regulated brokers.

• The broker must hold a valid Australian Financial Services License (AFSL) which allows them to offer their products and services to clients.
• ASIC stipulates that Australian brokers have a representative office in Australia to improve accountability and trader confidence.
• ASIC regulated brokers have to submit periodic audit reports and be completely transparent about their finances to avoid fraudulent practices.
• Brokers are required to keep their funds in segregated accounts in leading banks.
• All ASIC regulated brokers should provide seamless trading on fast and efficient trading platforms. They should also aim to resolve all consumer complaints efficiently.  

These requirements reduce market risk and protect trader interests.

Identification of ASIC regulated brokers

A regulated Australian broker with a valid AFSL license has a unique AFSL number which is verifiable through the ASIC website. The number is typically found in the “About Us” section and at the bottom of the homepage.

ASIC provides a brief history of its regulated members on its site. This allows traders to learn more about a company before trading with them.

How does ASIC regulation help traders?

ASIC consistently monitors all regulated members and is quick to launch investigations on any companies that deviate from the regulatory guidelines.

Enhancing trader trust

ASIC has several systems in place to improve trader confidence including:

• A compensation scheme that protects client funds in the event of broker insolvency.
• Several educational programs such as the MoneySmart program, whose aim is to educate traders and help them maximise their returns.
• Services that help with reclaiming lost money in dormant accounts.
• Codes of practice that people must familiarise with before investing in the markets.
• A support system that handles any complaints against member firms or ASIC staff. People can file complaints straight to the ASIC consumer helpline which deals with many issues such as financial malpractice, fraud and tip-offs.

Protecting your trades with a regulated broker

A flashy or professional looking website doesn’t guarantee a broker’s regulation. It’s your responsibility as a trader to determine the reliability and authenticity of a broker before trading with them.

With a regulated broker, you don’t have to spend time worrying about the safety of your funds. You can focus your efforts on analysing the market and developing your trading strategy. Choosing the right broker can give you an edge in the competitive forex market.