In November, officials in Eastern Europe coordinated raids on 15 call centers and arrested five people. According to the European Public Prosecutor’s Office, the criminals posed as brokers and led investors to believe they could earn high profits by investing small amounts in cryptocurrency.
The suspects deceived victims by posing as professionals at call centers or engaging in “other forms of so-called social activities.” According to the European Public Prosecutor’s Office, they then persuaded victims to invest in trading platforms controlled by the criminal organization, with the EverFX exchange being one such platform.It is reported that EverFX was once a compliant broker regulated by the UK’s FCA, Cyprus’s CySEC, and the Cayman Islands’ CIMA, holding reputable regulatory licenses. In early 2020, EverFX briefly entered the Chinese market but announced in May 2020 that it would no longer accept Chinese clients.
While the retail foreign exchange market is booming, it has inevitably encountered numerous issues, particularly those related to financial risk. As key participants in the retail foreign exchange market, foreign exchange brokers must not only be subject to oversight by regulatory authorities but also adhere to a series of compliance policies to contribute to the creation of a healthy foreign exchange trading market.
(I) Financial Security Policies
Some criminals exploit forex trading platforms for money laundering. To prevent illegal money laundering activities, forex brokers must verify client identities and clarify their trading intentions in accordance with anti-money laundering (AML) laws before providing forex trading services. AML and Know Your Customer (KYC) policies set forth clear requirements regarding forex brokers’ obligations to screen clients.
- AML (Anti-Money Laundering) refers to policies and regulations related to combating money laundering. These policies require forex brokers to conduct customer verification, monitor transactions, maintain records, and report suspicious activities, thereby assisting regulatory authorities in combating money laundering. Customer verification is a mandatory step when registering on most trading platforms.
- KYC (Know Your Customer) is an acronym for “Know Your Customer.” Before a client can begin trading, brokers must review the user’s legal information, verify the client’s identity through identification documents, and collect information such as the client’s passport or ID, date of birth, utility bills, home address, and the source of trading funds.This requirement is intended to ensure that brokers maintain accurate records of client information and verify that their clients are not engaged in illegal financial activities.
In particular, MetaQuotes recently announced that it would tighten the application review process for brokers in Asia and require all brokers to undergo KYC verification to prevent illegal activities such as financial fraud and identity theft.
(2) Regulatory Policies
In 2022, regulatory authorities in many regions imposed stricter requirements on brokers. Canada’s financial regulator imposed a minimum capital requirement of 75,000 Canadian dollars on forex brokers and limited trading leverage to 1:30 to control investors’ trading risks and prevent excessive speculation. In addition, detailed requirements were established regarding the internal structure of brokerage firms. Cyprus’s CySEC announced it would enhance its compliance and regulatory capabilities through new technologies and other tools, while the UK’s FCA tightened marketing regulations for brokers, explicitly cracking down on inappropriate marketing practices by retail brokers and monitoring brokers’ media activities.Against the backdrop of tightening forex regulatory policies, brokers must promptly stay abreast of the latest compliance policies issued by the regulatory authorities in their jurisdictions to avoid non-compliance.
(3) Cryptocurrency Regulatory Policies
Although the cryptocurrency market has gained popularity among many investors, the cryptocurrency trading sector has been plagued by frequent issues due to severe deficiencies in market oversight in the past. In 2022, many countries and regions enacted policies specifically targeting digital currencies to regulate cryptocurrency trading activities.
Canada has included cryptocurrency exchanges in its anti-money laundering (AML) and counter-terrorist financing (CFT) frameworks, requiring them to fulfill reporting obligations. Latin America has also incorporated cryptocurrencies into its anti-money laundering laws, while Australia requires cryptocurrency exchanges operating within its jurisdiction to register with AUSTRAC and verify their users.Singapore, Japan, and South Korea have all announced plans to implement stronger cryptocurrency regulatory measures, including monitoring bank accounts associated with cryptocurrency transactions and conducting stricter registration reviews.
In summary, compared to the past, forex brokers will face stricter regulation across the board. Brokers must closely monitor changes in compliance policies and refine their compliance procedures.
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