Europe modifies market abuse rules, how are brokers going to react?

The EU's MAR (Market Abuse Regulations) has been implemented since 2017 and aims to increase market integrity and trader protection. The regulation is currently under review, so what might that mean for forex brokers?

How will forex activities be included in the revised MAR?

Alexandre Constantinou, director of MAPS Platis, highlights the changes for which forex brokerage firms should prepare: "Europe has implemented a fairly demanding framework to prevent market abuse. In addition to the regulations on market abuse, Europe's nations have adopted very strict local legislation and harsh criminal sanctions for those who are found guilty of abuse of the financial markets."

"Europe is currently examining the possible revision of the existing regulatory framework for market abuse in order to further strengthen it. Areas under discussion include the broadening of its coverage to include forex contracts and CFDs, the revision of definitions and the establishment of cross-monitoring of trade order books".

As Constantinou says, if forex contracts (including derivatives) were to fall within the scope of the regulation, this would significantly affect forex brokerage firms, as they will have to closely monitor transactions carried out by their traders to detect possible insider dealing and market manipulation.

This will likely result in a bigger work load for many forex companies. However, Constantinou points out that there are automated solutions that exist to help them cope with the eventual extra work.

Regulators want greater compliance

"Competent authorities should already lead inspections to verify whether their brokers are complying with the revised market abuse rules", says Constantinou.

"But it seems that some regulatory agencies have not been active in this direction. However, in recent months, we have observed more actions from regulators such as the CySEC, who are ensuring that the forex brokers they oversee are following the market abuse rules."

Although the rules are currently being revised, it is likely that the Corona virus situation will delay the implementation of the more stringent regulations, as many regulators have had to change their priorities to ensure the stability of their markets in the context of the current critical situation.

"Enforcement and oversight of the relevant regulatory agencies regarding compliance with market abuse regulations may not be a top priority right now", admits Constantinou.

"However, this does not mean that regulated brokers do not have to comply with the requirements of the rules. At the same time, given the impact of the Corona virus situation on the market, regulators expect that disclosure of insider market info is continuously monitored and it is expected that regulatory bodies will be active here."

What should forex brokerage firms do now?

While the MAR needs to be updated, what should forex brokerage firms do to be ready when the new rules go into effect? According to Constantinou, they must ensure that they already comply with the current existing rules.

"As far as CFD and forex brokerage firms are concerned, we think they are particularly vulnerable to illegal insider trading activities, but that depends on their operating model and the assets they market to traders. In any case, it is prudent that they review their provisions to prevent market abuse and to ensure that they fully comply with the rules' requirements."