Have you heard the whisper that Forex trading is a new form of investment with the potential to earn you pots of money? It seems to be travelling slowly around the world, and there are consumers in Bulgaria wondering what it’s all about. Trading in foreign currencies used to be the investment of choice only for large organisations and major banks. However, the introduction of online trading has made it more accessible for ordinary people as well. Bulgaria is no different from a number of other emerging countries, and a large number of Bulgarians are now considering such a form of investment. If you happen to be one of them you should be thinking about regulation.
How the Forex industry is regulated in Bulgaria
In Bulgaria, Forex brokers are regulated by the Bulgarian Financial Supervision Commission (BFSC). The Commission awards licences to financial services providers, including Forex brokers in Bulgaria, and ensures that these licensed providers follow all the relevant legislation and regulations.
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Bulgaria joined the European Union in 2007, along with its neighbour Romania, which means that you are also going to be interested in an EEA Directive known as MiFID. All European Economic Area members are obliged to follow this Directive in relation to the provision of financial services. EU regulators, such as the BFSC, are also obliged to meet certain minimum standards of regulation. One of the reasons the Directive was passed is to ensure that all countries are equal, with no one country having an unfair advantage. The good thing for BFSC-regulated brokers is that it means they are able to offer their services in other member countries, by way of a passporting agreement.
Are the Bulgarian regulations on an equal footing with other EEA countries?
Bulgaria hasn’t received a lot of good press with regard to the regulation of Bulgarian Forex brokers. In fact, it could be said that it has been very negative. There are a number of experts who have said that the BFSC is chosen by a number of brokers because of its leniency and its light approach to regulation. This may possibly be true, and it is certainly true that a number of other better-known regulatory bodies, such as the FCA, employ a far stricter approach.Please don’t let this put you off choosing a BFSC Forex broker, though, because the BFSC is required to impose the minimum standards set out in MiFID, thereby providing you with an acceptable level of protection.
There are an increasing number of BFSC-regulated brokers offering Forex trading services
It’s already been mentioned that the BFSC has a reputation for its light touch, which is obviously going to be one reason for the increase in BFSC Forex brokers. However, there are a number of other reasons brokers are choosing Bulgaria to set up shop. A far more important reason is Bulgaria’s joining of the EU, and the fact that MiFID permits BFSC-regulated financial service providers to offer their services in other EEA member states. The Bulgarian tax system is another very attractive feature of doing business in Bulgaria. Income and corporation tax are set at a 10% flat rate, which is very competitive, and in line with other attractive tax systems such as those in Estonia and Cyprus.
Using these advantages gives Bulgarian Forex brokers a bit of a head start compared to brokers in other European countries. When you add in the light-touch approach to regulation, you’ll understand completely why the number of Forex brokers in Bulgaria is increasing so rapidly.
What does the Bulgarian Financial Supervision Commission do?
As the country’s financial regulator, it is in charge of issuing licences to financial service providers, including Forex brokers. Anyone applying for a licence will have to provide certain documentation for checking by the BFSC. However, the Commission has a number of other roles, including amending the status of a licence if the broker is found to be breaking the rules and enforcing the regulations. The BFSC also sets rules in respect of the following:
- The amount of capital required by a financial services provider and the company structure
- Relationships between BFSC-regulated entities and consumers
- The sources of the funds that are used to pay shareholders
Monitoring of compliance with legal requirements is another role of the BFSC, as well as monitoring the financial status of companies and verifying any information provided. In order to perform its supervisory role, it performs on-site and off-site examinations of providers’ activity, with the aim of preventing and thereby ending legal violations for the protection of investor interests.
If the BFSC finds that a broker is breaking the rules, it has the power to impose strict measures; for example, it could issue recommendations, fines or property sanctions.
How to check whether a Forex broker in Bulgaria is regulated by the BFSC
An important piece of advice is to choose a regulated Forex broker, but it is also advisable to check out any claims made by the broker . It won’t take a number of telephone calls, or hours spent researching online, as there is a very simple search option on the Commission’s website, and a public register with important information about regulated entities and Forex brokers. You can confirm whether a broker claiming to be regulated by the BFSC actually has a licence, their shareholding information, annual and periodic reports, and what kind of services or activities they are able to perform.
For your own protection and the security of your investment, it is best to choose a Forex broker in Bulgaria that has been licensed and is regulated by the BFSC. The promises you are going to be given by an unregulated broker are going to look very attractive, but nothing can match the peace of mind and protection you will get from a BFSC-regulated broker. Bulgaria may have started out with a bad reputation but it is nevertheless of an acceptable standard to comply with MiFID. Let’s not forget also to mention that if you are trading Forex in Bulgaria you are able to choose from other EEA-regulated brokers, by virtue of passporting rights.
