How NFA Regulation Helps In Cementing Investor Trust In Forex Brokers
NFA, or the National Futures Association, is a US-based regulatory authority that oversees the operation and conduct of market participants that include Forex brokers, financial companies, fund managers, investors and other financial entities. NFA is the primary regulatory body in the US that is responsible for ensuring the integrity of the US capital markets through constant surveillance and monitoring of various financial activities. NFA also ensures that all firms registered under the NFA adhere to the most stringent regulatory protocols for protecting the investor against all types of financial crimes, fraud, and malpractice.
Why Are NFA Forex Brokers Considered To Be Highly Reliable?
The US has enforced several rules and guidelines to prevent all instances of investor abuse, which were quite rampant during the early part of the past decade. Due to improper regulatory directives, millions of investors lost billions of dollars to scam brokers, which resulted in the Forex market earning a bad reputation among most international financial markets. The modern NFA reforms are aimed at increasing market transparency and protecting an investor’s assets, thereby rendering complete safety against financial abuse. In fact, NFA is considered to be at the pinnacle of regulatory oversight and members are expected to adhere to the several strict conditions enforced by the US authorities. Here are a few regulatory guidelines that make NFA regulated brokers highly preferred by a majority of investors in the Forex market:
1. NFA regulation requires all member firms to hold their clients’ funds in segregated accounts, and should not use these assets towards covering the company’s operational costs or any other expenses.
2. All NFA regulated Forex brokers are required to hold at least $20,000,000 as their operating capital so as to ensure that the broker is capable of managing its client’s position in the interbank FX market. Comparatively, European regulatory agencies only stipulate a minimum of $1,000,000 in operating capital.
3. A significant amount of operating capital for NFA Forex brokers also ensures that a broker can meet multiple withdrawal requests from clients or compensate for any market volatility without accessing customer funds. A large number of non-regulated Forex brokers file for bankruptcy due to being unable to raise the funds required for any market eventuality. In this regard, NFA brokers are considered to be far more stable than non-regulated brokers or the ones regulated by other lesser-known regulatory agencies.
4. NFA directs every regulated member firm to submit weekly financial reports with detailed information on the account balances, the cost of operations, accurate representation of clients’ assets, and other financial data. The information provided is referenced with third party auditors to ensure the accuracy of the facts represented in these audit reports. Every broker should also submit annual audit reports in addition to the weekly updates.
5. The process of obtaining an NFA license is incredibly tedious and cost-intensive. A broker has to go through multiple regulatory procedures to achieve an NFA membership, which is too time-consuming and expensive for smaller players. Therefore, smaller brokers tend to base their operations out of countries with low-cost alternatives.
6. NFA regulated brokers should maintain a professional and friendly attitude towards all clients, and in the case of consumer complaints, it is the responsibility of the broker to initiate a quick resolution. If the dispute between a broker and a trader remain unresolved, either party may approach the NFA for mediation and arbitration. If everything else fails, the consumer can initiate legal proceedings against the broker.
7. The NFA severely punishes illegal activities and financial misdeeds through hefty fines, sanctions, and even through temporary or permanent bans.