Latvia finds itself in a very advantageous position, located as it is between Germany, Scandinavia, and Russia, which has meant it has been able to enjoy acting as a trading hub for its immediate neighbours. The country has a very healthy foreign exchange industry, and has been able to cater to the needs of both local and overseas traders. Forex trading has become a popular form of investment for Latvians, much like in many other countries around the world, and there seems to be a good choice of Forex brokers in Latvia to choose from. But what should you be considering when picking your Forex broker?
An important consideration for new traders is regulation
Financial services in Latvia are regulated by the FCMC, which stands for Financial and Capital Markets Commission. This autonomous organisation has responsibility for the supervision of insurance brokerage firms and insurance companies, payment institutions, market pension funds, electronic money institutions and all participants in the financial instruments markets. The Commission was created to bring together the work of a number of regulatory bodies into one cohesive regulatory body, because the financial markets were expanding at such a rapid rate. The Commission was able to provide better regulation because it was more efficient, and was able to oversee the markets in a more objective way. Such regulatory improvements meant that risk factors were much easier to identify, and so market participants and clients could be better protected. Before the Commission was created, the job of supervision was left in the hands of the Securities Market Commission, the Insurance Supervision Inspectorate, and the Credit Institutions Supervision Department of the Bank of Latvia.
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After a number of unfortunate scandals, the FCMC tightened the rules
Latvian Forex traders have found themselves being much more cautious following a number of frauds and scams. The FCMC has also been forced to beef up its regulations. Forex traders are now much more genned up on the risks involved, and are tending to employ far less risky trading strategies. The US is one country that has viewed regulation in Latvia as far too easy-going, and has actually called for the FCMC to use stricter supervisions after a string of money-laundering scandals were uncovered. To help reduce suspicion, rumours and the shadow of doubt looming over the FCMC, the head of the Commission has taken a bold step and resigned.
MiFID and its connection with FCMC-regulated brokers
As Latvia is a member of the European Union, which it joined in 2004, FCMC Forex brokers are able to enjoy passporting rights according to the European Markets in Financial Instruments Directive (MiFID). This directive was designed to harmonise standards for the protection of investors across the European Union, and is currently in the process of being revised, with changes coming into force as part of MiFID II, which will be implemented shortly.
There are three areas MiFID is concerned with:
- The organisation of financial businesses – This area includes cross-border passporting, the issuing of licences, record-keeping, compliance arrangements, systems and controls, conflicts of interest, governance, and controllers.
- The conduct of financial businesses – This area includes rules regarding best execution policies, investment advice, reporting requirements, categorisation of clients, client order handling, commodity derivatives, and marketing reporting.
- Business transparency – This area is concerned with both pre-trade and post-trade transparency.
In one of these areas is a feature you should be looking for when choosing a Forex broker in Latvia, and that is the need for a broker that is regulated to have a procedure and policy in place relating to the handling of customer complaints and the settling of disputes.
How the FCMC is able to help with complaints
The way the FCMC helps consumers who need to make a complaint is by providing all the information necessary to make consumers aware of the procedure for making complaints about FCMC Forex brokers, or any other regulated financial services provider. The FCMC is not able to participate in contractual relations between clients and providers or resolve any disputes, but it is able to point the injured parties in the right direction.
In the event of a complaint regarding a Forex broker in Latvia, the first step is to try and resolve the problem with the provider. If this should be unsuccessful the next option is to contact the Consumer Rights Protection Centre (CRPC).
Is it really that important to choose an FCMC-regulated broker?
Yes, it is, and we really can’t stress this enough. Choosing a broker that has gone the extra mile to meet standards and comply with regulations is a sensible decision. Regulatory bodies around the world have been created to make financial services providers conduct business in a fair and honest way, and also to reduce the chances of a consumer being scammed. We have to say that not all regulatory bodies impose the same level of standards, but even the most basic is far better than none.
Those of you looking to trade Forex in Latvia find yourselves in a good position, as there are a greater number of regulated brokers to choose from by virtue of MiFID passporting rights. MiFID serves to join European regulators together and to ensure that everyone is singing from the same hymn sheet, to provide a fair and transparent financial services market across the whole of the EU. A number of European regulators have decided to go above and beyond the basic requirements, for example the FCA in the UK. Being a resident of a European Economic Area member state means you are able to use the services of Forex brokers located in other member states; but the power of MiFID means you can be confident of a certain level of service.
When you’re looking for a Forex broker in Latvia with which to do business, you should make an FCMC-regulated broker your first choice. And if you can’t find one that is able to tick your other boxes you can always choose a broker that is regulated in another EEA member state.
