How Forex Businesses Are Adapting to Crypto and New Regulations
Jan 28, 2022 3 minute Read
Cryptocurrencies are changing the way people view digital assets and think about investment, with international commerce likely to be one of the top beneficiaries. Forex trading businesses can learn from current developments in cryptocurrency regulation in order to adapt to the new environment and competition.
Forex business owners seem to be in a very tough spot now. Or at least the ones that aren’t willing to adapt. Now with the buzz of cryptocurrencies like Ethereum, Litecoin, and Bitcoin, it looks like cryptocurrency is about to enter the forex industry (at least for cross-border payments).
The other unfortunate consequence of our changing economy and technological landscape is that some jobs, careers, stores, ways of life—you name it, it gets replaced. Forex businesses don’t have to fall by the wayside if they’re willing to accept the changes crypto is bringing.
Forex Companies Embrace Crypto in Europe’s Changing Landscape
We’re all aware of the recent rise of cryptocurrencies, with Bitcoin and Ethereum leading the way. But what does this mean for forex businesses in Europe? As many know, cryptocurrencies have become a true game changer for the financial services industry. The growth rate of Bitcoin and other forms of cryptocurrency is nothing short of tremendous, even though it is still a relatively new technology.
With rapid growth comes new legislation and regulation. This new legislation has posed some challenges to forex businesses in Europe who want to trade in Bitcoin and other forms of cryptocurrency. In an effort to address these challenges, several forward-thinking forex brokers have started to offer cryptocurrency as part of their trading services.
These changes are very welcome in the financial industry, as they help legitimize crypto currency trading and make it easier for others to enter the market. However, there is still a long way to go before this form of trading becomes mainstream.
Accepting Crypto Transactions
In the past, there was a lot of skepticism surrounding cryptocurrencies, specifically bitcoin . Some people believed it was too much of a fad or even a scam. But as with any new technology, there are always going to be naysayers. The world has become more accepting of cryptocurrencies, which have gained traction with businesses around the world.
The best example of this is forex businesses accepting cryptocurrency for transactions or incorporating them into their strategies. This shows that the financial industry is starting to realize the potential in cryptocurrencies and that they can coexist peacefully with established currencies like the dollar. Instead of shunning cryptocurrency, forex businesses are embracing them and using them in tandem with their existing services and systems. It’s a step in the right direction that is paving the way for viable cryptocurrency options within mainstream banking and financial systems.
Many forex brokers are now starting to add cryptocurrency as a trading instrument. That’s one of the reasons why more people are choosing to trade with forex platforms in the first place. But this is also opening up new opportunities for these platforms because they have started to offer CFD trading, which allows forex traders to get exposure to cryptocurrencies by buying a contract for difference (CFD).
This is not entirely surprising. Trading on these platforms has always been straightforward, and it has never been limited to just forex pairs. As a result, adding new instruments is not a big deal for them.
It’s also worth noting that many people who use brokers are already familiar with cryptocurrencies. They’ve been following the market for years and know what kinds of opportunities they could use to increase their profits or reduce their losses. By adding cryptocurrency CFDs, these brokers are making it easier for those people to trade them using their existing accounts.
There are even some benefits for those who don’t own any cryptocurrencies yet. These instruments make it possible for anyone to trade them without having to open a foreign exchange account or register with multiple platforms.
A Brief History of Forex’s Fight to Stay on Top
The regulatory environment has been tricky for crypto businesses. The rise of ICOs in the past year has brought more interest in this market and some regulation, but not a lot of clarity.
The forex markets were unregulated until 2015 when they were brought under the remit of the European Securities and Markets Authority (ESMA). Since then, forex brokers have been subject to stricter rules, regulations and licensing requirements. In 2017, ESMA updated its rules for forex brokers to include cryptocurrency CFDs. This led to a boom in registrations with CySEC (the Cyprus Securities and Exchange Commission) which oversees the licensing of forex brokers on the island.
From 2017 to 2018, registrations with CySEC almost doubled from 1,100 to 2,100 as forex brokerages adapted to the new crypto-focused licensing requirements. In 2018, CySEC issued its first fine under this new legislation to a Cyprus-based forex broker who had offered crypto CFDs without being authorized or registered by CySEC. The regulator fined them $1 million and ordered them to cease offering these products to their clients immediately.
Licensing Requirements to Get Started with Crypto on Forex
With the market for crypto trading heating up, forex brokers are adapting to fit their clients’ needs and regulatory requirements.
Tethering crypto assets to fiat is a strategy that some brokerages have adopted to satisfy their clients who want to trade crypto without having to deal with the difficulty of owning and managing crypto assets. This is especially true for retail traders who aren’t interested in using an exchange.
The main reason that most retail customers use a forex broker is convenience, but another important factor is trust. Forex brokers are regulated and have a history of ensuring customer funds are safe and secure, so they’re considered a more trustworthy option than many crypto exchanges.
Other brokerages are taking steps to ensure they’re compliant with current regulations even if it means losing out on potential revenue streams. Some have stopped offering CFDs on cryptocurrencies altogether, while others have simply closed accounts belonging to U.S. clients, with some citing difficulties in dealing with U.S. regulators, as well as higher costs associated with licensing and compliance in the country as reasons for doing so.
Get a License from the Proper Authority
The biggest thing that you need to know is that there are two main types of regulation in the financial industry: Financial Conduct Authority (FCA) and Securities and Exchange Commission (SEC).
Tighter regulations are now being implemented in the forex industry and these have been attracting more and more investors to the crypto market because it offers them a way of trading anonymously, without the need for an individual license. Crypto exchanges don’t need a license for you to trade, but if you’re offering leverage or margin trading (as many do), then this does require a license.
The key thing about crypto companies is that they can offer financial services without a license. This means that as long as they are regulated by another authority, say AUSTRAC in Australia or FCA in the UK, then they can operate freely within those countries. When it comes to AUSTRAC, crypto is treated as money and if it comes from overseas then it must be reported to them by the crypto company that is receiving it. This is done via an e-commerce import report (IEC). If there’s no record of it then that’s deemed suspicious activity and can lead to investigation.
There are multiple licenses in the EU you can obtain, including an Investment Firm License, E-Money License, Fund Manager License, Banking License, and a Crypto Asset Service Provider Registration. You may need all, some, or just one depending on what you want to do with your exchange platform.
Open a Forex Trading Merchant Account
If you are a forex merchant, then you need to know that there is only one type of account that can be used for Forex transactions: the commercial account. This is different from the retail account because it is created and maintained by businesses, institutions, and governments.
A merchant account allows you to accept Visa, MasterCard, Discover and American Express credit card processing, also in foreign currencies via currency exchange or multi-currency processing. In fact, proper merchant services will provide users of forex trading platforms with alternative payment methods, not just forex credit card processing. Debit cards, ACH, direct bank account payments––whatever the best payment method for users is. This enables businesses and organizations with an international clientele to provide broader services. Some companies even have trouble collecting payments from other countries because they are not set up for cross-border transaction processing and some clients don’t have access to credit cards. Merchant account services can help with both of these issues.
There are many benefits that merchants gain by accepting international credit cards. One of them is the ability to expand their customer base, making it easier for them to collect more sales. Another advantage of these accounts is the fact that these transactions can be performed quickly and efficiently. There is no need for third party approval as long as a forex payment processing solutions provider has been approved by your country’s regulatory council, your business should be able to start taking international credit card payments immediately.
DirectPayNet is a high-risk merchant account provider that connects you with processors and banks to handle forex payment processing. We a long history of working with high-risk businesses, getting them the credit card processing power they need as well as linking them with appropriate acquiring banks.
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