Regulation of Retail Off-Exchange Forex: Registration, Disclosures, and Recordkeeping
Who must register
Retail off-exchange forex is regulated by the CFTC under CFTC Regulations Part 5, with the NFA as the self-regulatory organization. A firm acting as counterparty must register as a Retail Foreign Exchange Dealer (RFED) and become a Forex Dealer Member (FDM) of the NFA. Individuals who solicit, accept orders, or supervise that activity must be registered associated persons; they qualify by passing the Series 34 plus a background check and fingerprint submission. Statutory disqualification bars registration.
Required disclosures
Before opening an account, the dealer must furnish the CFTC-prescribed risk disclosure statement (Regulation 5.5) and obtain a signed acknowledgment. The statement cannot be altered, abbreviated, or buried in an account agreement, and posting it on a website does not satisfy the delivery requirement unless the customer actually receives and acknowledges it. NFA rules also require dealers to disclose their role as counterparty and to make financial information available to customers on request.
Financial and recordkeeping obligations
An RFED must maintain minimum adjusted net capital of at least $20 million (with additional requirements scaled to the size of its retail forex obligations), must not commingle customer security deposits with firm funds, and must keep customer funds in segregated accounts. Records of accounts, orders, confirmations, promotional material, complaints, and the disclosure acknowledgments generally must be preserved for five years, with the most recent two years readily accessible, and produced on request to the CFTC or NFA.
Worked example. A dealer mails a disclosure package, the customer trades for two weeks, and the signed acknowledgment arrives later. This violates Regulation 5.5: acknowledgment must precede the first transaction.
Traps: assuming three-year retention; assuming website posting equals delivery; confusing the $20 million net capital rule with a bond requirement.