According to the 2023 survey report of the International Organization of Securities Commissions (IOSCO), among the 195 independent states of the world, 78% of them allow regulated broker trade activities explicitly, although the requirements of the regulators vary exponentially. To illustrate, the SEC of the United States requires a minimum net capital requirement of 50 million US dollars from the brokers, while brokers licensed by the CySEC of Cyprus need to have only 800,000 euros. After China’s Securities Law was revised in 2020, unauthorized cross-border broker trading was prohibited. In 2023, the China Securities Regulatory Commission inspected and dealt with 37 illegal foreign exchange margin trading platforms, and the sum involved reached over 16 billion yuan. In Iran, due to international sanctions, the transaction volume conducted on the MetaTrader 4 platform declined from an average of 230 million US dollars per day in 2018 to 12 million US dollars per day in 2023, a decrease of 94.8%. It is noteworthy that in 2021, the Securities and Exchange Board of India (SEBI) reduced the leverage ratio from 1:100 to 1:30, which made the trading volume of derivatives decline by 42% within three months.
Complexity in the regulatory framework is also reflected in the licensing requirements. Fca-registered brokers in the UK are required to pass 12 compliance tests, including stress tests (200% market volatility simulation), with a pass rate as low as 29%. By comparison, brokers registered in Saint Vincent are not subject to meaningful examination. Of the 122 licenses issued in this jurisdiction in 2023, 81% were involved in high-risk Contracts for Difference (CFD) products. The MiFID II of the European Union dictates that the daily reconciliation variance of the segregated customer assets account should not exceed 0.5%, while there is a provision for 3% deviation in some offshore regulatory havens. Bank for International Settlements statistics of 2022 reveal that during cross-border broker trade dispute incidents globally, 67% were on unregulated platforms, with an average loss of $47,000 per incident.
Market access is directly influenced by geopolitics. After Russia imposed capital controls in 2022, the proportion of holdings by foreign investors on the Moscow Exchange declined from 41% to 9%, and the volatility of the ruble against the US dollar rose from an average of 6.3% per year to 38.7%. North Korea has completely banned residents from participating in broker trade. In 2023, security company Recorded Future monitored that the nation’s VPN tries to access trading platforms averaged 24,000 tries per day, an increase of 470% since 2020. In Saudi Arabia, the Capital Market Regulatory Authority (CMA) requires that foreign brokers sell 30% of their shares to Saudi local institutions, and the margin deposits of customers have to be 100% deposited into Saudi local banks. The 2023 International Monetary Fund report recognizes 23 countries around the world that have completely forbidden cryptocurrency-related broker trade, for example, Algeria and Bangladesh.
International sanctions and compliance risks come together. Of the 26 new brokers added to the OFAC sanctions list in 2023, 82% are claimed to provide alternative trading systems for Russian entities to avoid the SWIFT ban. A case in point is Turkey’s DenizBank, which was fined 89 million US dollars for its ruble clearing business in the Crimea region, which accounted for 34% of the bank’s net profit for the year. In anti-money laundering, FATF data shows that in 2022, the STRs reported by brokers globally amounted to 4.8 million but the average time to probe each case was longer, from 14 days in 2019 to 23 days. It is interesting that the “fast sandbox” facility introduced by the Monetary Authority of Singapore (MAS) in 2023 has reduced the testing duration of the novel broker trade model from 18 months to 90 days. As a result, 23 fintech companies have been granted temporary licenses.
Technical compliance has become a new battlefield. The EU’s Digital Operations Resilience Act (DORA) requires that a broker’s core trading system recovery time objective (RTO) cannot exceed two hours, and the stress test has to replicate a peak load of 6,000 orders per second. Nasdaq SMARTS monitoring system identified in 2023 that 7.3% of suspicious trading orders on the biggest worldwide exchanges originated from non-regulated broker trade platforms. In the privacy of data area, the Central Bank of Brazil imposed the highest single fine for brokers that violated LGPD – XP Investimentos was fined 28 million reals (approximately 5.6 million US dollars) for divulging customers’ data, which amounted to 5.2 times its daily trading commission on average. Blockchain analysis firm Chainalysis observed that money laundering via decentralized broker trade protocols amounted to 1.2 billion US dollars in 2022, an increase of 257% from 2021.