Currently the there is no global authority overseeing the activities of the financial markets. Still, individual efforts from each country exist to figure out what is going on and which is the best way to control the financial activities related to Forex.
However, this situation has started changing, and important regions of the world are making agreements about facing this reality. A notable example is the European Union promoting and already applying legislation such as the Markets in Financial Instruments Directive (MiFID).
Dublin, an important financial centre of the world, Ireland companies, as a part of the European Economic Area, enjoy some benefits and are free to carry businesses to all the European Union. This situation led the Central Bank of Ireland to function as the regulator for all financial activities in Ireland, including financial market brokers.
This was not always this way. Initially, financial brokers were regulated by a separate agency known as the Irish Financial Services Regulatory Authority. Still, after the financial crisis of 2008, the European Central Bank intervened with all European central banks to minimize the impact of the crisis. So, since 2011 brokers are regulated by the CBI, Central Bank of Ireland Commission.
CBI Functions
Like any other central bank in the world, the mission of the CBI is to safeguard monetary and financial stability, working to ensure that the financial system operates in the best interest of consumers and the wider economy.
The more essential functions of the Central Bank of Ireland are:
Maintain price stability, setting interest rates in coordination with other central banks of the Eurozone.
- Maintain Financial Stability: The responsibility of the CBI is to prevent big up and down movements in the economy to ensure the system conserves households and businesses in good and troubled times.
- Economic Analysis and statistics: The CBI collect many data to better understand the economic environment and help leaders make informed decisions.
- The CBI makes sure there is enough cash in circulation to maintain the economy normally running. It also supervises the internal plumbing of the financial system, such as payment systems
- Financial regulation: As Ireland Financial regulator, this organization sets up the rules and standards that financial services must follow. This is done through Prudential regulations which ensure that firms are financially sound, and safety managed.
CBI Supervision in Forex
As a part of the EU, Ireland makes sure all financial services in the country follow the guidance issued by European Central Bank, and primarily the MiFID to ensure that their activities won’t affect European Economy.
Financial stability is also a requisite for Financial Brokers. These should hold a minimum amount of money proportional to the trading capital held by clients in their accounts.
Regarding the Consumer protection policy, the CBI follows the rules of the MiFID, and the ECB forces all brokers of the European Union to hold the funds of their clients in segregated accounts.
The CBI also created the Consumer Protection Code. Any financial service firm is obliged to follow this code when managing financial advice, advertising services, and dealing with consumer complaints. This code applies to companies in Ireland and companies in the EU offering its services to Irish consumers.
Foreign Exchange Global Code of Conduct and MiFID
As a member of the Euro system, the CBI adheres to these principles and regulations, implementing both the code and the MiFID standards in all activities related to the Forex market.
These rules establish the minimum information required from financial services providers to protector investors in the world of trading.
The MiFID was designed to Strengthening the organizational and operational requirements of investment service providers and
improving the relations with its customers.
The MiFID standards establish the identification principles and regulate the conditions for the externalization of financial activities conducted by entities. But it establishes the norms for the treatment of the information supplied to the clients.
The MiFID Employs a classification based on three categories of knowledge. According to this classification, different norms are established for the treatment of information to the public. The three categories are Eligible counterparties, professional and retail clients. Most customers are classified as retailers, and that is why protection efforts are concentrated
On the other hand, we have the Foreign Exchange Global Code of Conduct, which was established in 2017 to create global principles of conduct in the Forex market. The code does not have any legal status and does not represent obligations for market participants but was created to complement local regulations.
The code is based on six principles
- Ethics: Participants are expected to promote fairness and integrity in the forex market
- Governance: Forex market participants are expected to have an effective governance framework to promote responsibility and commitment in their activities.
- Execution: Transparency and openness are expected when executing transactions
- Sharing information: It is expected precision in communications and the protection of information.
- Risk management and compliance: A control must be maintained to identify, manage, and report the risks associated with the Forex market.
- Confirmation and settlement processes: Transparent and efficient post-sales processes must be guaranteed.
CBI Effectiveness
The CBI is not the best-known regulator and does not even have the best reputation.
There are instances in which a Forex broker can conduct operations in Ireland without being regulated by the CBI, which represents a severe risk for traders. Although The CBI is making efforts to reverse this situation. For example, in 2016, it was found that more than 300 forex brokers did not operate by established regulations, so the CBI threatened to revoke licenses to 20 Forex Brokers.
When choosing Forex Brokers from Ireland, always make sure you check if they are regulated entering http://registers.centralbank.ie
Likewise, the forex brokers regulated by the CBI do not have the popularity that brokers from other parts of Europe have. Because Ireland follows the guidelines of the European Union and its proximity to the United Kingdom, there are not many incentives for brokers to establish in that country because they can simply establish in the United Kingdom at similar costs.
Bottom line
To conduct their operations in Ireland, Forex brokers must comply with a series of codes of conduct imposed by the Central Bank of Ireland to achieve high standards of transparency and security for investors. These regulations bring as benefits:
- The establishment of minimum standards for monitoring and consumer protection.
- Promotion of good practices in the industry
- Promotion of solvent institutions that give users confidence
Despite not having the best reputation, in recent times, it is making an effort to improve the situation by monitoring the market more effectively. The regulations of the Central Bank of Ireland are based on the MiFID, which is why certification from this entity provides peace of mind to users who can be sure that a forex broker regulated by the CBI complies with European standards.