The Role of the FSB/FSCA in Regulating SA Forex Brokers and their Activities

Why do we need regulators, why can’t we just choose which broker to deposit our money to, how to trade, and how to transfer money from one account to another – what’s all the fuss about Forex regulation that the FSB is hammering on? It’s our money, after all!

Slow down, the FSB is your friend and you’ll see why before the end. The Financial Services Board (FSB) or Financial Services Conduct Authority (FSCA), as it is now officially called is a major player in the South African financial space. As the sole regulator of all Forex- and financial-related activities in the country, this institution is crucial to the growth and stability of the entire economy.

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Three Reasons Why It is Very Important

The Volume of Funds Traded – Because there is so much money involved in the Forex market, regulation automatically becomes inevitable and necessary. With an average of $5.3-5.5 billion dollars exchanging hands every week day all over the world – and SA traders exchanging a good portion of that, the need for a watchdog to keep an eye on things becomes very critical.

Economic Stability – Because slight instabilities or major financial meltdowns typically affect the entire economy, every country in the world have put in place measures to monitor the inflow, outflow, and exchange of foreign currencies in its financial system – South Africa inclusive. For instance, without the regulatory bodies stepping in on time, the 2008 financial meltdown in the USA could have been much worse and catastrophic even far beyond the source of the problem.

Trader Confidence – Imagine there is no regulator watching over FX brokers, day traders would find it impossible to evaluate and choose the right and genuine ones. Knowing that the broker you settle for is licensed and listed as one of the accredited FSB regulated Forex brokers, you can then trade with utmost confidence that your money is protected.

What Exactly Does the FSB or FSCA Do?

FSB and FSCA main motiveSince the Financial Services Conduct Authority (FSCA) began operations, the South African Forex space has received a further boost and is now more trusted by traders who now see that the brokers are being monitored effectively.

Majorly, the FSCA’s main motive is:

  1. To protect all kinds of financial customers, including FX traders, by promoting fair treatment by financial institutions.
  2. To work hard to provide enlightenment and education programs around financial matters, thereby promoting financial literacy.
  3. To ensure that the financial markets, like Forex, among others, are efficient, stable, and full of integrity.
  4. To serve as an overseer and bring about financial inclusion, effectively transforming the South African financial sector for good.

Empowered by the Financial Sector Regulation Act, No. 9 of 2017 (FSRA), the FSCA remains the key government institution that ensures Forex brokers keep away from activities that are considered illegal or fraudulent.

Just as FX traders are protected, the brokers are also protected by the FSCA. This would, in turn, ensure the market is stable in the long run.

Why is Forex Regulation so Important?

Without ethical behaviour in the financial sector – especially with regards to Forex trading, there would not be any integrity in the business. Outfits that sell FX signals, the brokers, investment banks, and everyone involved in the exchange of currencies are expected to be fair and transparent in their dealings.

Standards and Quality Control
For the sake of adhering to set standards, all FX brokers are expected to be registered and licensed in their country of operation. In light of that, Forex regulations ensure that there is a clear process outlined for quality control. This way, all FX brokers in SA are subjected to the same standards and must meet a basic minimum before they are licensed and allowed to accept customers’ funds for trades.

Regular Evaluation and Audits
FX regulation in South Africa helps the government to conduct a proper evaluation and periodic audits of the brokerage firms. In other words, the regulations guide the FSCA (the enforcer) in a bid to ensure that all set industry standards are adhered to. For instance, issues like transfer charges, required bank balance, refund policies, and many other related activities are reviewed from time to time during audits. Without such mechanisms in place, a brokerage firm filing for bankruptcy may not have enough money – or the willingness – to pay off existing customers if/when the brokerage firm is winding down.

National Security (Anti-Money Laundering and Counter-Terrorism)
Like every other serious country in the world, the FSCA is a major mechanism that helps the government of South Africa detect and block the inflow or outflow of illicit or suspect cash to or from abroad. This critical aspect ensures that illegitimate flow of funds for terrorist activities and other fraudulent acts are detected and blocked on time. As a regulator, this important role it is saddled with is crucial to the national security of the whole country.

Global Confidence in the System
South Africa remains one of the biggest centres for financial trade in the world because big banks, investment houses, and millions of traders trust the system it runs, especially as it concerns financial matters. As the largest stock exchange in Africa and the 16th most active financial market in the world, the Johannesburg Stock Exchange thrives largely because it is built and operates on a solid set of rules and regulations.

The FSCA is a major contributor to this success. Its regulations are modelled after some of the most trusted FX regulators in the world like the Financial Conduct Authority (FCA) of the UK, the Australian Securities and Investment Commission (ASIC), the Commodity Futures Trading Commission (CFTC) of the USA, etc. For this reason, the SA Forex trading space is accorded huge respect and is also highly trusted as far as safety and confidence are concerned.

Is it Compulsory to Trade with an FSB (FSCA) Licensed Broker in South Africa?

While there is no compulsion from the FSCA that demands traders trade with brokers that are licensed and regulated by the institution, the FSCA highly recommends that one only trusts and trade with accredited brokerage firms on its list.

There are 81 licensed and accredited Forex brokerage firms in SA at the moment – with a few more in the process of getting the license.

Of these 81, most are domiciled in Europe, some in Australia, and others in the USA. Of course, a few are original SA brands too. While some are regulated by two or more institutions covering different trading hubs around the world, a few are regulated by single entities only.

In any case, the FSCA strongly advises intending traders to choose from the list of regulated brokers so that they can trade with the confidence that their funds are protected and they would not be defrauded.

What is the Difference Between FSB and FSCA?

The difference between FSB and FSCAAfter the change of name and structure by the SA Treasury Department, all FSB regulated Forex brokers in SA are now referred to as FSCA regulated Forex brokers.

Apart from the change in the administrative structure, the regulations, with respect to traders and brokers, remain largely the same. However, the new rules have made it much stricter for new entrants into Forex brokerage space – which is a good thing for traders. It means only legitimate and serious brokers would be licensed, going forward.

That being said, a major advantage of the change from its former name and structure – The Financial Services Board (FSB) to the new Financial Services Conduct Authority (FSCA), is that traders can now initiate deposits and withdrawals in South African Rand (ZAR) instead of relying on a third party for such exchanges when depositing and withdrawing.

This means, in essence, that the SA financial sector now has the capacity to conduct full Forex services, exchanging the ZAR for any other tradable currency without needing to pass through other big banks abroad.

In effect, traders and brokers pay lesser charges in terms of transfer fees and as well get their deposits and withdrawals completed in a shorter time frame when compared with what was obtainable before now.

How Do I Identify a Legitimate Regulated Forex Broker?

Before signing up with any broker who claims to be regulated and licensed by the FSCA, make sure to do your due diligence and find out if they are indeed genuine before depositing your funds with them.

Every legitimate FSB (FSCA) regulated Forex broker is issued a license number which you should demand and crosscheck with the regulator at the very beginning.

Secondly, check the kind of regulation they claim to possess. This is important because some may have been deregistered but still flaunt old and outdated regulations, catching unsuspecting traders unawares in the process. The regulations they claim to have must be recent and in tandem with what the FSCA lists on its website.

Finally, if you suspect anything wrong or their claims are not adding up, quickly report to the FSCA. This way, the firm can be dealt with appropriately, saving you and others from some very serious trouble.

The Bottom Line

Be very careful when choosing an FSB (FSCA) regulated Forex broker in South Africa. Make sure to know the rules and regulations, and as well stay informed about new changes in the FX regulatory sector. FSCA is crucial to the stability of the SA economy just as it is critical to your success and safety as a trader!