Tough Sell: Polish Authorities Toughen Forex Trading Regulations

Tough Sell: Polish Authorities Toughen Forex Trading Regulations

Forex trading is a game of risk, and it’s no surprise that most traders actually lose money on their investments. Some reports being circulated put the actual figure at an astonishing 95%, even though the source of this remains unclear. Closer to reality, perhaps, is a report by the Wall Street Journal stating that the giant brokerage firm and one of the oldest institutions of its kind, FXCM, saw a substantial 70% of its clients lose money in 2012. With such grim statistics out there, it’s no wonder that Polish authorities have moved to stiffen the regulations on the country’s Forex industry.

What Exactly has Changed?

Forex brokerage in Poland falls under the authority of the Polish Financial Supervision Authority (KNF). It has decided that from now on, every broker operating within the country will require express authorization from them. This is a departure from the past where brokers from fellow EU member states didn’t have to seek any additional authorization from Polish authorities to operate there. As things stand now, foreign brokers will either have to seek this authorization or operate solely as an agent of a KNF-licensed brokerage firm.

The new policy covers CFD and online Forex trading activities, and only those that have been authorized to do so will be allowed to market their services to Polish citizens. A slight allowance exists, however, that would make it possible for unregulated firms to market to Poles. They are allowed to market to groups, or a broad sample of potential clients, even though the parameters of this definition remain somewhat unclear. The intention here is believed to be an effort to minimize targeted advertising, with the supposition that it’s much harder to mislead a group through false advertising than a single prospect.

Leverage Caps

The previous laws allowed firms to leverage (ratio of debt to equity) their holdings at a cap of 1:100 and a 1% margin but the new regulations have tightened this to a cap of 1:25 and a 4% margin. This is a drastic change, equaling the stringent regulations of Japan which stand at the same levels. Even in the USA, where the industry is firmly regulated, the leverage cap stands at a relatively relaxed 1:50 ratio.

The laws have some teeth to them, with a fine the equivalent of $1.26 million or even higher being on the books for anyone found in violation. The KNF went a step further to become the firs country to enact traffic filtering regulations, whereby they would partner up with telecommunications service providers to uncover unlicensed brokerage firms. All this is to go towards their efforts to protect Polish residents from the clutches of unscrupulous and fraudulent brokers.

What Prompted these Changes?

A report released by the KNF showed that Polish residents were losing money with Forex brokers at a rate of 79.3%, which stood only slightly higher than the figure sourced from the Wall Street Journal for the FXCM organization. The report added that similar figures were being reported across neighboring European countries such as France, for example, that reported increasing losses among its population over recent years.

So that’s at the heart of the KNF’s actions the desire to protect Polish residents. This doesn’t make them unique at all, as numerous other regulatory bodies from different countries such as Netherlands, France, and a host of others have also taken regulatory measures with the same objective in mind.

Are These Changes Really Necessary?

The fact is, the binary options and Forex markets have grown to be very lucrative industries and have attracted unscrupulous players onto the field, a fact that was first highlighted in Israel when the regulators had to step in to protect unsuspecting retail investors from the toxic products being advertised by the shady brokers.

While that is all well and proper, it has to be said that perhaps the Polish authorities might be overreacting in their response. As we’ve mentioned, efficient systems such as those to in effect in the USA and the UK operate with far less restriction than what the Polish authorities have decided upon. As a matter of fact, those participating in Forex trading in Poland may find themselves at even greater risk as they are pushed to trade with less reputable firms in their search for favorable options when it comes to minimum capital requirements, bonuses, and flexible leveraging. At the very least, the KNF might have done better to take a course of action more in line with what its neighbors in the EU community are doing. The Polish citizens would then have no need to take their money elsewhere.