Few things can be as detrimental to a financial market as fraudulent or otherwise dishonest activities, and Forex market is no different in this regard. It is imperative that Forex traders feel safe from risks they did not sign up for, fraud being the first among them. This is where Forex regulators come in. It is Forex regulator’s job to enforce regulations and combat fraudulent activities in Forex markets.
People of different backgrounds and specializations count among Forex regulators; this includes lawyers, managers, economists, auditors, trading specialists, special investigators etc. Different regulatory bodies hire specialists that they find necessary to investigate possible cases of fraud in public and private sectors. What those Forex regulators have in common is that they all have their respective roles in the system and have to be highly qualified professionals in order to ensure the utmost security possible. For instance, lawyers investigate legal aspects of suspected fraud cases and pursue legal cases when needed, while auditors search for discrepancies in the accounts and make sure the regulations are being enforced to the letter.
There are even self-regulatory organizations (SROs), which are NGOs authorized to enforce, create or sometimes even change regulations in a particular markets. They are usually not under SEC control, as they are privately owned and run, but their role in Forex regulation cannot be ignored. In fact, there are a number of official Forex regulators offices including: Financial Services Agency (Japan), Securities and Futures Commission (Hong Kong), Financial Services Authority (the United Kingdom) etc.
And all those Forex regulators have their work cut out for them. Front-running, all manners of abuse, inadequate supervision, unauthorized accounts, churning, unauthorized transactions in general, erroneous reports and many others are among the problems that have plagued financial markets in the past and need to be stemmed out.
For instance, front-runners use insider trading and privileged information to get the upper hand on their clients and the rest of the market by exploiting market opportunities before they are even published. There are people whose positions give them insight into classified information or different kinds of about-to-be-published reports that could influence financial markets; information people would pay handsomely to get in advance; information that could make a fortune if exploited in the right (or wrong) way etc. The temptation can prove too great for some people and it is regulator’s job to make sure they do not succeed.
However, not all Forex frauds are easy to detect, which makes them harder to prove or regulate. Churning is the process in which a broker uses his client’s account to conduct needless trade for the sole purpose of generating higher commission for himself. There is no regulation on where trading stops and churning begins. The problem is that some practices (churning being the tip of the iceberg) are not entirely defined by the existing regulation and are usually harder to combat. Luckily, regulations do tend to evolve alongside markets so these problems should soon be a thing of the past.