The issue of financial market regulation has been prominent for decades now, although it undoubtedly came into sharper focus following the devastating financial crash of 2008. After all, this global recession was largely precipitated by excess and a lack of market regulations, creating a pressing need for this issue to be addressed going forward.
Not only this, but the subsequent decade has also seen significant growth and innovation in volatile markets such as a foreign exchange. This includes a rising trend for smart and intuitive fintech platforms, including licensed FX and CFD brokerage sites.
This, combined with rising demand amongst an increasingly youthful trading demographic, has created new regulatory challenges for market participants to countenance. But how are these being met to increase client protections across the continent of South Africa?
The Rise of FX Trading in Africa and the Associated Challenges
South Africa has a broad and eclectic regulatory forex trading approach, with this type of derivative trading actively prohibited in some regions.
Conversely, regions such as South Africa and Nigeria have become huge players in the global forex market during the last 10 years, thanks almost exclusively to the perfect storm of rising demand and sustained technological advancement.
More specifically, the large youth population in South Africa and Nigeria and a sustained improvement in Internet penetration in these regions (which is now estimated at 39.2% of the continent’s total 1.3 billion population) has driven widespread demand for online CFD and FX products, creating a scenario where brokerage sites have been historically able to compete primarily on price as opposed to quality, due diligence and their overall value proposition.
While this has undoubtedly triggered a hike in demand and removed many of the market barriers that previously existed in forex-friendly nations such as Egypt, Kenya and the Ivory Coast (in addition to Nigeria and South Africa), it has also arguably increased exposure for traders and threatened even the most basic client protections.
How Have These Regulatory Challenges Been Met?
In order to meet these challenges, South Africa’s Financial Sector Conduct Authority (also known as the FSCA and formerly referred to as the FSB) has evolved significantly and turned its regulatory focus directly to the forex market.
As a result of this, all brokers must comply with a number of criteria if they’re to achieve an official license, including various commitments with regards to leverage and the active safeguarding of their client’s capital.
At the same time, all OTC derivative brokers are required to report trades in a bid to organise CFD trades, creating a far greater sense of transparency and much-improved reporting going forward.
These measures not only serve as direct consumer protections, but they also minimize the risk of fraudulent activity and help to draw rogue operators out into the open.
Also, any traders who operate through a licensed and regulated broker are now able to report perceived scams or misconduct directly through the FSCA, with this type of transparency previously unavailable even in regions of South Africa where forex trading was permitted.
These measures have proved hugely beneficial for traders in South Africa, particularly as the demand for online products and OTC derivatives has continued to soar. Of course, this has also benefited the market, while creating a clear regulatory map in jurisdictions where forex trading is fully legal.