Global Forex trading has come a long way. Before now, Forex was traded in a market where laws and rules were non-existing. Interested traders simply perform business following all the terms that are laid out by the Forex broker.
Currently, it isn’t so. Forex regulation in continents and countries means that brokers are traders who have to trade following rules set by a regulatory body. For instance, The National Futures Association (NFA) and Commodities Futures Trading Commission (CFTC) regulates Forex trading in the US, while the Financial Conduct Authority (FCA) regulates Forex trading in the UK.
Also, putting Europe into perspective; while all countries feature a local regulator, they all follow the regulatory rules of the European Commission. This uniformity has seen the European Forex industry become the biggest in the world. The UK alone accounts for more than 43% of global Forex trades.
In Africa, Forex regulation continues to be a topic with varying discussions. Besides, only few African countries have staunch regulations. Although Forex trading seems to be increasing in the continent, there's a need to uniform Forex regulations for continuous business growth.
Forex Trading Overview In Africa
Forex trading in Africa is competitive, just as it is all over the world. In the past two decades, the industry has experienced speedy growth which can be attributed to increased internet penetration, youth unemployment, and the advent of brokers from Europe.
Some top Forex brokers operating in Africa include IQ Option, ForexTime (FXTM), IC Markets, Olymp Trade, Plus500 and XM Forex Trading. South Africa and Nigeria lead the Forex trading industry in Africa. Countries coming behind include Kenya, Angola, Egypt, Tanzania, and Namibia.
Out of these countries, only South Africa and Kenya have noteworthy regulatory policies in place. Forex trading in South Africa is regulated by the Financial Sector Conduct Authority (FCSA), while in Kenya, it is regulated by the Capital Markets Authority (CMA).
For a continent with millions of Forex traders, lack of Forex regulation puts many of these traders at risk.
Problems Affecting Regulation In Africa
There are reasons why regulating Forex hasn’t been possible in a lot of African countries. Regulating Forex is somewhat difficult because it’s a very large market and it is decentralized.
This is why Forex regulators in other countries and continents are only able to employ rules that affect their regions only and not the global market. Nevertheless, each African country does feature a body that regulates financial markets and banks trading. In most other countries, these are the same bodies that regulate Forex.
This brings us to another debacle, which is disinterest from the government. To regulate Forex, acts of laws will be passed in parliaments just as with the implementation of any other law. Rather than push bills to implement regulations, some African governments are implementing minor restrictions against Forex trading. Some of these restrictions include limiting the maximum trading amount for a Forex account.
Furthermore, African countries with staunch sharia laws are not very friendly to Forex trading, which includes countries like Egypt, Algeria, Benin, etc.
Why Uniform Forex Regulation Is Needed In Africa?
When there’s uniform Forex regulation, the entire African Forex industry grows together rather than that of individual countries. First of all, such regulation will promote fair and ethical trading activities across the continent. There will be fewer occurrences of dishonest deals that cause Forex traders to lose money.
However, it’s still in the hands of traders to stay away from these deals. Take South Africa for example, there’s regulation but traders still fall prey to scams. Nevertheless, with regulation, traders can identify legit brokers.
Every broker will be required to register with the regulatory body and obtain a license to operate. All traders need to do is to stay away from Forex brokers that are not licensed, no matter how juicy their deals may appear.
The regulatory body will also be tasked with fishing out these fraudulent Forex brokers. In continents like Europe with staunch uniform regulations, there has been a reduced rate of Forex scams.
The regulation also ensures client protection. Forex trading is a very risky business and this allows customers to trade with the assurance that their investments are safeguarded. If there is bankruptcy with any broker, traders will get compensated.
In every financial market, regulation is very valuable. With the rules and guidelines, brokers and traders are kept in check so none goes extreme. It has to do with accountability, law, and responsibility. It ensures traders can trust the brokers they invest with knowing that if anyone breaks the regulation laws, they face the consequences.
Even if it’s far from becoming a reality, it’s not enough that every African country regulates its Forex markets. For continuous business growth of the continent’s Forex industry, there should be uniform regulations.