CNB’s Role In Regulating Forex Brokers In Czech Republic

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CNB Forex brokers are regulated by the Czech National Bank (CNB), an authority vested with powers to oversee activities of all financial entities and to monitor market participants in the Czech capital markets for the safe and stable functioning of the country’s economy. CNB is comparatively one of the newest additions to the European Central Bank systems, having been preceded by the State Bank of Czechoslovakia before the dissolution of the unified state into two different states; The Czech Republic and the Slovak Republic. Unlike other member nations of the EU, The Czech Republic has entrusted its Central Bank, the CNB, to supervise and regulate all aspects of the financial markets in the country. The CNB has even been endowed with the authority to issue bank notes and coins, set monetary policies on behalf of the Government, regulate the banking sector in the country, monitor payment systems, and to oversee the healthy functioning of the Czech capital markets. The CNB is also responsible for other financial institutions and companies that deal in insurance, pension funds, e-payment gateways, credit unions, securities firms, fund managers, investment companies, and the foreign exchange market. The Czech Republic only allows CNB regulated brokers and brokers under the EU MiFID derivative to offer Forex trading products and other CFDs to Czech investors; therefore, Forex brokers should have an authorized presence in the EU to be able to cater to Forex traders from the Czech Republic. CNB is home to a handful of Forex brokers that have managed to carve a niche for themselves in the highly competitive retail FX trading marketplace. Even though Czech Forex brokers don’t enjoy the same exposure and popularity as enjoyed by its other European counterparts, CNB regulated brokers do enjoy significant popularity among both retail as well as institutional traders in the Czech Republic.

A Few Vital Facts Of CNB Regulation

cnb logoCNB is a public legal entity that has seven different branches across the Czech Republic, with the headquarters situated in the capital city of Prague. CNB acts according to the laws and guidelines implemented under the Czech constitution, and the CNB is mostly free from any intervention from public or private authorities unless prescribed by law. CNB is managed through Government funds, and hence, is not considered as an independent self-regulatory organization, especially since CNB acts as the Central Bank of the country for issuing and implementing monetary as well as fiscal policies. CNB is responsible for overseeing the different aspects of the Czech economy, whether it is related to managing the foreign reserves, determining the value of the Czech Koruna (CSK) in the FX markets, regulating banking institutions, supervising the financial markets, or ensuring the stability of the economy as a whole. CNB has many duties assigned to it by the Ministry of Finance, which is taken care of by the CNB Governor and the various departments designed for specific financial markets. The CNB is systematic in its regulatory protocols for supervising financial companies ranging from banks, insurance firms, credit unions, pension funds, investment companies, stock brokers, and other members of the capital markets. Being a central bank, the CNB may not be as targeted towards the supervision of Forex brokers as other EU self-regulatory organizations, but the CNB has issued various guidelines and regulatory protocols that can help investors to stay protected from broker scams under the excellent EU MiFID guidelines. CNB Forex brokers should adopt an independent brokerage system that connects traders directly to the interbank exchange without any manipulation of price or tampering with the trading platform. CNB regulated brokers are advised by the CNB to have separate accounts for holding clients’ funds, in a bid to prevent brokers from misusing their customers’ money to compensate for their shortfalls. Initially, all brokers used to hold client funds in the same account as their operating capital, which led to several large-scale financial malpractices. The new regulatory guidelines issued by the MiFID and other regulatory authorities have helped in reducing fraudulent practices, and using segregated accounts for client funds is a standard norm adopted by most genuine and high-quality Forex regulatory agencies. CNB requires every regulated member firm to keep a detailed record of all financial transactions, and companies assign an independent certified auditor to create and submit regular audit reports to the CNB. Companies registered under the CNB should also make it a priority to have a sound insolvency procedure in place so as to protect investor funds from any bankruptcy or legal hassles. Brokers are held accountable for their actions, and CNB does not support companies that deviate from the prescribed regulatory norms and code of conduct.

As An Investor, How Am I Protected By The CNB?

Unlike other central banks in Europe and across the world, the CNB interacts directly with investors and does everything in its power to ensure that investors are protected from financial irregularities or scam practices. CNB was entrusted with the job of protecting the consumer through the Consumer Protection Act of 2008, which allows the CNB to entertain complaints and suggestions directly from the general public. The move was seen as a revolutionary idea intended to prevent companies from having a free reign over their investors, which in turn helped investors to voice their grievances to a higher authority. CNB has the right to initiate investigations against a company or a financial scam upon receiving information from the general public. The CNB is also open to suggestions and advice from its consumers for modifying the regulatory framework according to the actual demands of the market. At times, the CNB is seen to be working with its investors and certified experts to promote the transparency in the markets, and to aid the development of the Czech economy. The CNB believes in imparting financial information and improving financial literacy by educating the next generation of investors at a primary level. CNB is actively involved in financial education in schools to impart knowledge among children about the safe concepts of investing in the financial markets. The CNB also provides timely information to the current crop of investors in the market by issuing circulars, newsletters, press releases, and other information through the public media. CNB’s official website is also an excellent resource for investors to gain extensive knowledge about the present financial environment, and to receive elaborate information on CNB regulated companies as well as registered firms that are eligible to provide their services to Czech citizens. The Czech Republic’s presence in the EU allows all Czech investors to trade the FX markets with any EU broker, provided they are regulated by a regulatory authority licensed under the MiFID. Czech traders may find CNB Forex brokers to offer better protection due to their local presence; however, it is safe to assume that all investors in the EU are protected under the MiFID umbrella, which makes it extremely safe for investors to enjoy complete peace of mind over the safety of their trading capital.