Maintaining high standards of compliance has always been a challenge for brokers. A rapidly evolving technology landscape, planning and controlling operational risks requires compliance agility. Regulatory bodies have been equally agile in fine-tuning their oversight, given the speed of change in the financial sector.
A major obstacle many brokers face is the cost of compliance, which is expected to rise from 4% of the total revenue in 2017 to 10% by 2022. Yet adapting to the changing environment and transforming efficiently to expand to new markets and comply with new regulations makes this expense unavoidable.
But what if there was a way to future-proof your brokerage to ensure continued compliance? At Takeprofit Tech, we’ve made this easier with plugins for several core requirements.
The Financial Action Task Force (FATF) and the EU’s 5th Money Laundering Directive set international standards to verify the identity of clients. Some of the key regulations in this regard include:
- The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017
- The Financial Services and Markets Act 2000 (FSMA)
- Proceeds of Crime Act 2002
- Estonia Virtual Assets Regulations
- Bank Secrecy Act (BSA) AML Regulation USA
The simplest way to prevent criminal activity through trading accounts offered by your brokerage is with the Anti-Fake Account plugin. This MT4/MT5 risk management tool monitors your server journal and raises red flags if multiple accounts connect to the same IP address. Cybercriminals often use fake identities to create multiple accounts, abusing the broker’s platform for their own ends.
Negative Balance Protection
This is another requirement enforced by most regulatory bodies. The Financial Conduct Authority (FCA), which regulates financial services firms and markets in the UK, requires brokers to provide protection that guarantees that a client cannot lose more than the total funds available in their trading account at any point in time. Similarly, the European Securities and Markets Authority, tasked to protect investors and promote stability in the financial markets for the common region (ESMA), has the same rule. Both ESMA and FCA also require brokers to provide a standardised risk warning, informing traders of the percentage of a firm’s retail client accounts that incur losses on average.
To ease this process, we’ve created the Negative Balance Protection plugin for MT4/MT5, which allows you to prevent each trader’s balance from falling below zero. With the plugin, you can ensure that any instance of negative balance is rectified and the account balance is returned to zero. It withdraws credit facilities from the account if the balance is depleted.
One of the primary aims of any financial regulatory framework is to protect customers against continued losses. This is done through several guidelines, such as limiting the traders’ maximum exposure and setting leverage limits. Both ESMA and FCA have set the leverage limit for CFD products between 30:1 and 2:1, based on the volatility of the underlying financial instrument. The FCA requires brokers to automatically close a trader’s position when the trader’s funds drop to 50% of the margin required to keep the position open.
Conversely, brokers offering their services in any of the EU member nations need to comply with leverage limits of 10:1 for commodities other than gold and non-major equity indices, 5:1 for individual equities and other reference values and 2:1 for cryptocurrencies.
Brokers can effortlessly comply with leverage limit requirements with the Takeprofit Tech Dynamic Leverage plugin for MT4/MT5. It allows you to configure and manage leverage and margin levels for each client. You can set custom leverage for a specific trading account based on the open position volume or exposure. Custom leverage rules can also be created when needed. This way, you get to motivate clients with exciting trading opportunities while safeguarding your brokerage against risks. The settings can be changed at any time. These changes will be reflected in real-time.
In addition, the Max Position Exposure plugin allows you to set limits on the number of positions a trader can open simultaneously. This not only helps you comply with regulations, but also protects your brokerage against trading risks.
And a Bit about Crypto Assets
The cryptocurrency market is witness to some of the most rapidly evolving regulatory frameworks. The US SEC, ESMA, FCA, as well as regulatory bodies across Africa and Asia, are carefully watching the developments in the crypto landscape. They intend to focus on legislative proposals to oversee crypto asset-related service providers and to protect clients. For example, the EU is working on legislation for Markets in Crypto-Assets (MiCA), Digital Operational Resilience (DORA) and a pilot scheme for distributed ledger technology market infrastructure. Aside from managing information and communication technology risks, the legislation is likely to also include rules associated with third-party service providers.
To remain compliant with crypto regulations, brokers can choose Crypto Adapter, a standalone app from Takeprofit Tech that receives trade orders from MT4/MT5 and passes them on to the relevant crypto exchange for execution. It also receives real-time price quotes from crypto exchanges and transmits them to the MT4/MT5 server.
We also offer a Cryptocurrency Feed Aggregator plugin, which aggregates real-time prices across 6 different crypto exchanges, so you can provide live price feeds to your clients. It supports 50+ symbols and offers flexible markup configuration (min/max spread, %-based or absolute markup).
Plus, the Takeprofit Liquidity Hub gives you the benefit of multi-asset liquidity aggregation, including for cryptocurrencies. You get to offer the best possible execution conditions without any reconnections, restarts or pauses in quotes.
Learn more about our plugins and broker support.