Regulatory Guide: NFA and FINMA

As we mentioned before, there are many regulators that have strict regulatory process and complete regulatory system to manage and to control forex brokers and the three regulators FCA, FINMA and NFA are of “AAA” grade under our evaluation. And in this article, we will focus on other two “AAA” grade regulators, the NFA and FINMA.

Understanding of NFA Regulation

The National Futures Association (NFA) is an agency that operates under the supervision of the Commodity Futures Trading Commission (CFTC), the government agency responsible for regulating the US futures industry. The US regulatory framework is deemed as one of the worlds strictest. US residents and citizens are only permitted to operate with CTFC and NFA regulated foreign exchange brokerages.

Membership in the NFA is required for all brokers, signals providers, brokerage firms, swap dealers, and associates who wish to do business on U.S. soil. Only NFA regulated brokers are allowed to offer brokerage services to residents of the U.S., and failure to adhere to the strict NFA regulations can attract heavy penalties and legal action.

How does the NFA regulate a forex broker？

1. Safety of Client Funds：

Segregation of Customer Funds

(1) All customer funds for trading on designated contract markets (exchanges) must be kept apart (“segregated”) from the futures commission merchant's (FCM's) own funds—this includes cash deposits and any securities or other property deposited by such customers to margin or guarantee futures trading.

(2) Segregated accounts must be titled for the benefit of the FCM's customers.

(3) Acknowledgements must be provided that would preclude a bank or clearinghouse from recognizing a right of offset against the account for the FCM's debts.

(4) Customer funds in segregation have a bankruptcy preference in the event COM of FCM insolvency.

2. Requirement on Forex Brokers' Reports：

Forex Daily Report; Forex Monthly Report; Forex Quarterly Report; Daily Trade Data Reports; Financial Reports (unaudited); Certified Financial Reports (audited); Anti-money laundering Reports; Net Capital Report; Chief Compliance Officer Report.

How to check a broker is NFA-regulated or not？

Generally speaking, NFA-regulated broker profile will be found at the BASIC page of NFA website. Try to find it and check if the broker profile published on NFA website will match the info from the broker website.

The detailed steps are as follow:

1. Find the licensed/ID no.(preferred) or name of the forex broker, which you can get from the broker's website;

2. Enter the NFA ID or broker's name into the search bar on https://www.nfa.futures.org/basicnet/;

3. And you'll get the broker's profile on NFA website. At this time you will click the 'Activity Status' and check if the broker get Yes for 'Firm is engaged in retail off-exchange foreign currency futures and/or options' and Yes for 'Firm is soliciting customers' ;

4. If all the above steps have been done, don‘t forget to check the most important information: check if the firm details published on NFA website matches the ones you’ll go to trade with, especially the website and email etc.

If no, please keep away the broker because its probably an unauthorized firm and your money will fall in danger.

How to solve disputes with a NFA-regulated broker？

When you have disputes with a NFA-regulated broker, you can proceed the following ways:

1st way: The recommended way is to contact the broker directly and discuss with them to find a solution.

2nd way: If you're not satisfied with the broker's solution, you can file an online complaint to NFA: https://www.nfa.futures.org/complaintnet/complaint.aspx.

3rd way: If the 2 ways above can't solve the dispute, the last way is to ask for arbitration service: https://www.nfa.futures.org/arbitration/index.html.

Understanding of FINMA Regulation

The Swiss have a healthy history of ensuring the privacy of their investors by proactively supervising the conduct of financial firms, which is why Switzerland is considered to be the safest country on the planet in terms of safeguarding clients' funds.

A few years earlier before Online trading started its rapid increase of volumes, the Swiss Bank Directive has issued a requirement to every broker operating within the country that obliged them to obtain a banking license by the Swizz Financial Market Supervisory Authority (FINMA).

Obtaining FINMA license is not an easy one at all, as first there is a requirement of sufficient capitalization, along with an agreement that protects customers up to 100,000 CHF in case of the Brokers insolvency. Yet, in terms of clients protection and funds, Switzerland considered being on of the worldwide safest county as well as proven fair trading conditions.

How does the FINMA regulate a forex broker？

1.Safety of Client Funds：

FINMA requires that clients deposited assets, including forex deposits, must be fully segregated. The clients funds under FINMA-regulated forex brokers are guaranteed.

2. Requirement on Forex Brokers' Initial Capital:

All FINMA forex applicants meet the capital requirement: fully paid-up minium capital of CHF 10 million.

3.Requirement on Forex Brokers' Reports：

FINMA supervised forex brokers are asked to provide audit report and anti-money laundering report to FINMA.

How to check a broker is FINMA-regulated or not？

Generally speaking, FINMA-regulated broker profile will be found at the Licensed Institutions and Persons Page of FINMA. Check if the broker profile published on FINMA matches the info from the broker website.

The detailed steps are as below:

1. Find the name of the forex broker, which you can get from the broker's website;

2. Enter the name into the search bar and choose 'Category' as 'Banks and securities firms' on

https://www.finma.ch/en/finma-public/authorised-institutions-individuals-and-products/ ;

3. And you'll get the broker's information on FINMA website. At this time you will check if the broker be authorised as bank; If no, please keep away the broker because it's unauthorized to provide forex trading service.

How to solve disputes with a FINMA-regulated broker？

When you have disputes with a FINMA-regulated broker (bank) , you can proceed the following ways:

1st way: The recommended way is to contact the broker (bank) directly and discuss with them to find a solution.

2nd way: If the response was not what you were hoping for, you have the following options:

● Contact the Swiss Banking Ombudsman

You can either send the complaint by post: Schweizerischer Bankenombudsman, Bahnhofplatz 9, P.O. Box, 8021 Zurich Switzerland or make an online complaint form and submit it:

Complaint Documents by Post: https://bankingombudsman.ch/en/written-enquiries/

Online Complaint Form: https://bankingombudsman.ch/en/written-enquiries/

Authorisation Form: https://bankingombudsman.ch/wp-content/uploads/2021/02/Eingabeformular2021_EN.pdf

● You can also contact FINMA. Outline precisely what the problem is and what has happened so far. If the broker has set out its position, please enclose their response with your complaint to FINMA.

You can either send the complaint to the email: info@finma.ch or make an online complaint form and submit it.

Online Complaint Form: https://www.finma.ch/en/finma-public/reporting-information/

3rd way: If the 2 ways above can't solve the dispute, the last way is to issue a case to the court in Switzerland.

Conclusion

While regulation in forex markets was virtually non-existent in earlier years, the rapid growth of forex trading among retail investors has led to increasing scrutiny and regulation by bodies. Regulations are aimed at protecting individual investors and ensuring fair operations to safeguard clients' interests.