South America has become a very promising niche, with the spread of the Internet in Latin America, where more than 80 percent of all households have access to the Internet. There is an excellent potential for people who want to enter the world of FOREX.
Most South American countries lack the regulation on the FOREX market, necessary for the establishment of FOREX brokers in their territory. This lack of regulation of FOREX brokers attracts dishonest or low-quality companies. Fraudulent pyramid schemes take over the name “FOREX” without having anything to do with this market.
The exceptions are the cases of Uruguay, Panama or Belize, where the establishment of this type of brokers is allowed, without making a lot of distinction about whether they intermediate in products quoted in regulated markets or OTC.
Regulation of the FOREX market in Mexico
In Mexico, there is no regulation for the FOREX market. Therefore there are no local FOREX brokers, and the fundraising in Mexico for FOREX trading is not allowed.
In spite of this, foreign regulated companies can advertise their products on FOREX in Mexico, they can perform the commercial activity and offer service to Mexican traders from their abroad headquarters, and there are local agents, trading schools, and investment advisors, which present the market activity for international brokers. There are no impediments for the Mexican trader to operate FOREX abroad.
Regulation of the FOREX market in Colombia
The Colombian control does not contain an exact description of what the FOREX market is, nor does it regulate it explicitly. Even so, it does not ignore its existence and equates it to spot markets for the exchange of cash.
FOREX brokers cannot operate in Colombia and cannot make a public offer (neither advertising nor direct commercial activity) of their services in Colombia unless they have a representative office or correspondent contract, a possibility that the regulation reflects without the existence of real examples.
Within Colombian regulation, it’s evident that a Colombian resident can operate FOREX with an international broker if the initiative to open an account arises from himself and under his entire responsibility.
Regulation of the FOREX market in Argentina
In Argentina, FOREX is not included in the list of regulated financial products contemplated by the regulator (CNV). Therefore it is not a product that can be publicly offered in Argentina or capture capital from the public in Argentina for FOREX trading.
Recently there was a norm that prohibited Argentine residents from operating financial derivatives settled in foreign currency, outside of Argentina, without prior authorization from the Central Bank.
The recent repeal of this rule gives freedom to the Argentine trader to contract FOREX services with entities regulated outside this country.
Regulation of the FOREX market in Chile
Chile is a peculiar case in South America, given that the regulator does not consider the FOREX a financial product and is inhibited in its management, allowing local and foreign companies to maintain headquarters in Chilean territory, conduct commercial activity and publicity. Even they can capture deposits in local banks without the need for regulation.
International regulation of the FOREX market
The lack of local control forces FOREX traders in Latin America to trade with foreign brokers.
The fact that a serious regulator regulates the broker offers many guarantees to the client like security that the company’s practices are correctly controlled; the broker is not taking risks that could lead to his bankruptcy; it guarantees on the funds of customers (up to €20,000 in many European Union countries, £50,000 in the UK); and ultimately someone whom to file a claim if the client is considered unfairly treated.
Not every regulator complies with these objectives; many minor regulations offer almost no real guarantee. The case of the regulation of Cyprus is remarkable. The Cypriot regulator, CySEC, has been discredited after allowing numerous scandals, as the most recent case of IronFx.
If we have to highlight a regulation for the FOREX market, this is undoubtedly the one of the United Kingdom with its Financial Conduct Authority (FCA).
London is the traditional cradle and most significant world marketplace for the currency market, and the FCA takes its work very seriously. Maintaining capital in a British entity under the supervision of the FCA is probably safer than keeping them in a local bank in any country in Latin America.
The funds of the clients of British brokers are protected for up to 50,000 Pounds per customer, by the Scheme of Compensation of British Financial Services (FSCS), in case of bankruptcy of the broker.
The control over the entities is rigorous; for example, in case of insolvency, the broker must inform the FCA within one hour so that it organizes the bankruptcy of the broker without customers losing their capital.
The heavy Latin America currencies’ situation is pushing their residents to try to protect their nest egg, and one way to do so is by putting the money outside the frontiers wiht the FOREX Market.