The Organizations That Regulate Online Trading In The EU

by Susan Paige on February 5, 2020 · 0 comments

Trading with online brokers is immensely popular and the market is constantly growing. Yet, many are still concerned about their safety when trading online and there are way too many people that doubt the seriousness of the market regulation.

The truth is that the industry is very tightly regulated and the brokers that are licensed in the European Union, have to follow strict regulations while also subjecting themselves to regular and random audits.

So, in an effort to shine some light on this topic, we thought we’d provide a quick summary of the European online trading regulation and the organisations whose responsibility it is to keep us safe.

The Underlying Laws and Regulation

The main player in the financial regulation game of the EU is the European Securities and Market Authority (ESMA). It’s the official market regulator for the entire Union and the organisation that writes all the laws and rules regarding investments and trading. Moreover, ESMA is responsible for the Union-wide financial law called Markets in Financial Instruments Directive, or MiFID for short.

According to the EU themselves, the idea with ESMA was to establish an EU-wide financial markets watchdog and their main goal is to enhance investor protection.

Subsequently, all financial regulatory bodies – both private and national – operate under ESMA. That also means that all investment firms and online brokers within the EU has to follow their regulation.

However, while ESMA sets the rules and laws regarding trading and investments, other organisations do the “dirty work” of actually issuing licenses and auditing brokers. For example, in Sweden, it’s the Finansinspektionen (FI) that’s in charge of the Swedish market.

Furthermore, there are two main regulatory bodies in Europe that issue most of the broker licenses and you can read more about them below.

The Cyprus Securities and Exchange Commission

Most online brokers in the EU have a license from the Cyprus Securities and Exchange Commission (CySEC). They operate according to MiFID and oversee all the financial services in Cyprus as well as most of the brokers in the European Union.

The commission has been around since 2001 and has been responsible for several regulatory changes that have made the market much safer for traders.

Generally speaking, when trading in Europe, you want to use a broker with an active license from CySEC because they have some of the strictest trading regulation in the world.

The Financial Conduct Authority

The Financial Conduct Authority (FCA) is the British version of CySEC. The FCA is responsible for regulating financial firms and maintaining the integrity of the financial markets in the United Kingdom. They operate independently of the UK government and is financed by fees charged to members and licensed operators.

In short, the FCA does the same work as CySEC and any broker with a license from the FCA can be considered safe to use.

The future of the FCA is currently a bit uncertain due to Brexit and changes regarding their regulatory work is expected as the UK leaves the EU in late January.

Risks With Trading

Even though the online trading market in Europe is tightly regulated and safe as long as you use regulated brokers, there are still risks involved in trading and investing.

Therefore, you must educate yourself on how to trade and invest and you need to do everything you can to minimize the risks involved. Also, never ignore the most fundamental rules of financial speculation: never invest using money you can’t afford to lose.

Photo credit: Mike Cohen.

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