For Forex Traders in Canada, a Guide to IIROC Forex Brokers
Wherever in the world you may be trading in Forex from, understanding the local regulations is very important. Generally, the Forex market is largely unregulated, with regulation taking place on a more local scale. Choosing the best Forex broker is an important first step for anyone new to this form of investment. You should, therefore, be looking for a Forex broker regulated in Canada, or at the very least one who is regulated in another country, rather than picking one that isn’t regulated at all. The situation regarding the regulation of Forex brokers in Canada is a little bit different from that in a number of other countries. So who is responsible for regulating financial services providers?
An introduction to the IIROC and IIROC-regulated brokers
In Canada, it is the Investment Industry Regulatory Organization of Canada (IIROC) that has national responsibility for the regulation of financial markets in Canada. However, and this is where things are a little different, financial market regulation is also enforced on a provincial level. In addition to the IIROC, there are three provincial regulatory agencies: For the Toronto region, financial services are the responsibility of the Ontario Securities Commission. For British Columbia and surrounding areas, regulation is the responsibility of the British Columbia Securities Commission. While the Autorité des Marchés Financiers covers Montreal and Quebec.
The IIROC and financial regulation
The IIROC has a number of important functions with regard to the supervision of the financial services industry. They include the following:
- Performing regular reviews – This will include reviews of individual IIROC-regulated firms to ensure they are using the correct procedures, providing appropriate advice, following recommended trading-desk procedures, and compliant with all relevant regulations.
- Developing rules – This is to ensure that the highest standards are maintained in the investment industry.
- Screening employees – This is to ensure that only those of good character are employed by IIROC financial service providers, and that they are also well trained, have passed appropriate educational courses and programmes, and have been background-checked.
- Setting minimum requirements – An example is in relation to capital requirements.
- Investigating misconduct – It is permitted to initiate disciplinary proceedings and impose penalties, suspensions, fines, permanent bans or termination of membership, if it deems it necessary.
The IIROC and its connection with provincial regulatory bodies
Forex traders in Canada have previously found the industry’s regulation to be very confusing, as there were two sets of rules for Forex brokers to comply with. This was seen as an unnecessary complication, and provincial and national regulatory bodies have been working hard to harmonise the situation. It has resulted in a new set of rules to guide Forex brokers and the conduct of the industry.
The original problem developed because provincial regulators were classifying Forex trading instruments differently. In Quebec, for example, it was viewed as a derivative instrument, whereas in Montreal and British Columbia it was viewed as a security. Two different classifications meant that two different sets of rules were applicable. With the new harmonised rules, both the IIROC and the provincial regulators use the same classification, and this has significantly changed the way Forex brokers in Canada operate.
The rules for Forex brokers in Canada and IIROC registration
If you live in Canada and are considering Forex trading, you should be aware that all Canadian Forex brokers have to be registered with the IIROC. A broker offering a service that involves trading in foreign currency pairs is classed as an investment dealer, which is an IIROC-registered activity.
Another recent rule set by the IIROC limits leverage to 18:1, which is, unfortunately, not good news for the smaller investor. It has meant that Forex trading has become a form of investment mainly for those with much larger amounts to invest. However, it should also be considered a good move, as it limits the amount an investor is at risk of losing.
Any individuals who are employed by an IIROC regulated broker have to be appropriately qualified. This includes salespeople, who have to prove they are proficient in Forex trading contracts as well as being qualified futures traders. Portfolio managers also have to be properly qualified, which should be good news for you, because it means that anyone setting up business in the financial services industry has the best qualifications. It’s not possible for just anyone to set up such a business and manage individual client accounts.
The future looks bright for Forex traders in Canada.
Although it has to be said there are a number of traders who would disagree, the new regulations are a good thing for Forex traders in Canada. Such disapproval is leading many Canadian traders to use offshore brokers. The IIROC are trying to change traders’ minds with an explanation of why the rules were put in place. After all, anything that ensures maximum security for clients funds has got to be a good thing, right? And rules that restrict the availability of such a risky form of investment ensure that only those who can afford to make losses and have the right mindset are able to participate in Forex trading.
Many Canadian Forex brokers have already made the required changes, and there are also a number that have created independent IIROC-registered companies that operate separately from the parent company. These independent companies are designed specifically for Canadian Forex traders.
If you’re worried it’s going to be difficult to find out whether a broker is IIROC registered, don’t be. There is an easy-to-use search option on the Commission’s website, and this is something we’d always recommend. Performing your own due diligence is very important, as there have been a number of Forex brokers claiming to be regulated when they simply are not. You can quickly check a broker’s regulatory claims and find details relating to registration, approval, and whether there have been disciplinary issues.
With the new regulations and harmonised standards, Canadian traders can now feel much more confident in their choice of investment. We would urge all of our readers to consider regulation a positive thing, because it does tend to have your interests at the core of its operation.