To provide a definite legal basis and provide security guarantees for traders, of course, brokers in this world are also trying to be able to obtain an existing official regulation, for example in Indonesia itself there is CoFTRA which provides regulations for existing local brokers. in Indonesia. Regarding regulatory issues, forex brokers are generally divided into two broad lines, namely those brokers who have regulations and those who don’t have regulations. Therefore, before starting to run forex trading, we must first check whether the broker who is our partner has clear regulations or not, because this is one of the main things that we must make sure before running forex trading for sure. And even for brokers who already have regulations, they are also at least divided into several parts, including:
Offshore Regulator
As the name implies, offshore regulation or offshore regulation in which there are various kinds of freedoms that the broker can exercise and are not bound by existing regulations in large countries that have full control of financial markets. Where this offshore regulation is mostly located abroad which is completely different from the country where the broker comes from. There are several types of regulations that are included in this offshore or offshore regulation, including MFSA Malta, CYSEC Cyprus, FSC British Virgin Island and others, all of which are regulations with fairly high flexibility and most brokers who use this regulation can also have clients. using initial trading funds with a very small nominal and this can be said to be quite easy too, especially for those who want to start trading but with limited funds. Brokers who have offshore licenses can say that the existence of the company is real, but the monitoring from the regulator is very loose, which means that if unpleasant things happen, it can be said that the risk must be borne by each client and they are quite difficult to hold the regulator accountable. because the place is abroad and is not a big country. However, at least it can be confirmed that offshore regulations are much better than brokers without regulations whose origins are not clear, where the risk of making transactions at brokers without regulations can be said to be quite dangerous as well.
Mid-Range Regulator
The second type is the intermediate regulator which includes FMA/FSP new zealand and regulators in the euro area. A broker with a medium-wide regulation has a requirement and a fairly loose monitor will still be at least still better than an offshore regulator. But that doesn’t mean it’s actually safe because there have been several cases experienced by brokers with intermediate regulators, and one example is the mass bankruptcy of several forex brokers in 2015 where at that time many brokers with English FCA regulations were able to take partial refunds. but for middle-class brokers like FSA New Zealand, they can’t do it, which means that even a middle-class broker can’t basically be said to be safe, so it’s back to the traders themselves.
High-end Regulator
This type of regulator is known for its super strict requirements and also quite good supervisory duties, including the United States NFA/CFTC, Japan’s JFSA, Swiss FINMA, Germany’s BaFIN, British FCA and Australia’s ASIC. Where the advantage of a broker with this top level of regulation is the guarantee of the safety of the funds that we have. Brokers with very strict regulations like this require that the broker concerned must meet the requirements strictly and also be monitored regularly by the party who has the authority which aims to anticipate the possibility of fraud or the loss of client funds. Even if the broker who already has the highest regulation goes bankrupt, there is no need to worry either because the regulation itself actually has a separate system that allows client refunds.
Offshore regulation may refer to various foreign based entities or accounts. To be eligible to operate overseas, the account or entity must be based in a country other than the customer or investor’s home country. Many countries, territories, and jurisdictions have offshore financial centers (OFCs). These include well-known centers such as Switzerland, Bermuda, or the Cayman Islands, and lesser-known centers such as Mauritius, Dublin, and Belize. The level of regulatory standards and transparency differs greatly between OFCs.
Proponents of OFCs argue that they increase capital flows and facilitate international business transactions. Critics argue that offshoring is a way to hide tax liabilities or illicit profits from the authorities.
In terms of business activities, offshoring is often referred to as outsourcing mas, the act of establishing a specific business function, such as manufacturing or a call center, in a country other than the country where the business most often does business. This is often to take advantage of more favorable conditions in the foreign country, such as lower wage requirements or looser regulations, and can result in significant cost savings for the business.
Businesses with significant sales overseas, such as Apple Inc. and Microsoft Corp., may take the opportunity to maintain associated profits in offshore accounts in countries with lower tax burdens. In 2018, it was estimated that more than $3 trillion in earnings was held overseas, in more than 300 United States companies.
Offshore regulation is a financial service regulation made in a country located outside the jurisdiction of a well-known financial service activity area. For example, in the financial world, there are two areas known as well-known areas for carrying out financial service activities such as New York and London, in these two cities there are usually organizations or institutions that are special authorities to give permits and supervise financial service activities such as forex trading carried out. by forex brokers. Therefore, every forex broker who wants to be seen as a quality forex broker needs to follow the regulations set by the official authorities located in the city of London or New York. If you don’t follow the regulations from the official authorities from London or New York, the image of the forex broker will lose out.
Expensive fees
Regulators in cities that are well-known as providers of financial services activities must set strict regulations because the cities of London and New York are very dependent on their lives as places for conducting trading activities. So a fairly strict regulation was made so that the brokers who were active in it did not easily deceive their clients and forex trading activities could run smoothly every day. Coupled with the fact that many financial services regulatory authorities in the European region charge a fee of EUR 730,000 to forex brokers to operate normally and the worst thing is that the financial services regulator in the New York area charges a fee of USD 20,000,000 for a broker to operate. normally offer trading brokerage services to the people of the United States.
Due to strict regulations and expensive fees, finally forex brokers, especially those with small capital, decided to look for other cities that set looser regulations and did not require to pay deposits of up to millions of dollars. The choice finally fell on other cities such as Vanuatu, Bermuda, Cayman Island, Seychelles, Belize to Gibraltar. All of these cities are often located on a relatively small island, so they are called offshore regulations.