Broker Affiliate programs come in all shapes and sizes. With the security and trust issues prevalent in the fintech industry as a whole, security and trust become vital questions for potential traders and affiliates alike. For traders, the problem is, “can I trust this broker with my money?”. For you, as an affiliate, the question is, “will I be paid for my referrals to this broker?”.
Well, for affiliates, right off the bat, the answer is, “you don’t need to trust the broker.” Your relationship as a forex affiliate is with Forex-Ads. We take care of all your payments, and we’ve never missed a payment yet. In the unlikely event, an issue arises with one of our brokers; we’ll take care of it. Your relationship is with us.
For traders, though, the trust and security question is hugely more complicated. Your referrals will deal directly with the broker they sign up with. If that broker goes under for whatever reason, then trader funds will disappear with it.
It doesn’t necessarily have to be a pre-determined or malicious case. Cast a look back to the Swiss Franc event of 2015 when Switzerland announced it was scrapping the 1.20 CHF/EUR peg. The Swiss Franc gained an almost immediate 20%; a lot of people lost a ton, some made a bundle, and a lot of brokers went out of business.
Unfortunately, we’ve all heard the horror stories of forex scams and brokers deliberately setting out to misappropriated client funds. That happens with regulated brokers as well as unregulated brokers but with much higher frequency for unregulated brokers.
So What Is A Regulated Broker?
It’s important here to define what we mean by “Regulated” before going any further. It’s possible to get regulation of a sort from several offshore zones such as Seychelles, for example, or BVI (British Virgin Islands). While these are government institutions, there are no fall-backs in place for restitution or broker error. There is no clear complaint policy or Financial Obdursman or any compensation schemes in the event brokers go out of business or fail to pay back client money.
Brokers regulated in these offshore zones can also have significant PSP (payment processor) issues. Most of the biggest payment processors refuse to offer processing to these offshore brokers, which means fewer deposit and withdrawal options for their traders and significantly higher processing fees for whatever payment options they do offer.
For this article, we’ll confine our definitions to brokers regulated with a primary onshore regulator.
Brokers regulated in a member state of the European Union also fall under the MiFID framework (Market In Financial Instruments Directive). MiFID is at its root a passporting system under which brokers regulated in Germany, for example, are allowed to offer their services to traders in all other EU member states. Brokers falling under the MiFID framework receive authorized status from European regulators.
One of the primary regulators EU brokers use is CySEC, the Cyprus Security and Exchange Commission. Many of the world’s biggest brokers are regulated under CySEC, and the regulator has an excellent reputation. Being a member of the EU, Cyprus enjoys all the benefits of the unified banking system and regulatory frameworks. Traders from any EU member state are covered under the same consumer rights as traders from any other EU member state.
Regulated brokers have to abide by stringent rules, breaking any of which could result in significant fines. These regulations include auditing and reporting standards, client funds, data security, GDPR (General Data Protection Regulation), Compliance, Anti Money Laundering, to name just a few.
One of the oldest financial regulators is the UK’s FCA (Financial Conduct Authority). While still a subscriber to the MiFID framework, once the United Kingdom officially leaves the EU, that will no longer apply.
Regulated Broker Marketing Benefits
Regulated brokers have to operate under a very stringent framework that extends to their marketing materials as well. Recent MiFID regulation changes banned the use of bonuses and free trades, for example, and these changes are reflected in the materials regulated brokers are allowed to use. This framework has some considerable benefits for affiliates as well. If you promote a regulated broker on Forex Ads, you know exactly what the relationship between your referrals and the broker will be. Forget competing against other affiliates promising heaven and earth to their potential referrals.
Regulation means a level playing field for the broker, their traders, and you as an affiliate. You’ll know what you can and can’t use in your marketing campaigns and, if you’re even in any doubt, contact your AM at Forex Ads, and you’ll get the answer to your question.
Promoting regulated brokers opens your marketing to a much wider audience and with much broader options as well. Since many payment processors won’t process client deposits to unregulated brokers from countries inside the EU, for example, you’ll be limited in the audiences you can target.
Deposit and withdrawal options also come into play here. One of the most popular payment methods in Germany, Austria, Belgium, and Switzerland is SOFORT, an online payment portal. If the broker you promote doesn’t support SOFORT, chances are your conversions from these countries will suffer. Regulated brokers will support SOFORT. Unregulated brokers probably won’t.
Promoting regulated brokers as an affiliate gives you far more options than promoting unregulated brokers. You’ll have a far wider audience to target with far more comprehensive options. Not only that, but you’ll be able to match potential referrals to a broker who supports their preferred deposit option.
Safety and Security
Opening a trading account with a forex broker involves a somewhat significant leap of faith for clients. After all, you’re asking them to deposit funds with a company they’ll likely never meet in person. A client trading account involves very little of what could be described as tangible. Everything is Ones and Zeros on a computer screen, so the trust element is crucial.
Regulated brokers have to abide by a rigorous set of rules and regulations when it comes to anything related to client funds. For a start, regulated brokers have to use segregated accounts. This regulation obliges brokers to keep their corporate accounts free of any client money, which must be held in separate accounts. Client funds have to be always available. Fines for any transgressions of this segregated account regulation are very severe.
The regulatory framework also obliges regulated brokers to use authorized external auditors for their operations and financial reports. These have to be filed with relevant authority and fall under very close scrutiny at all times.
Regulated brokers are also obliged to subscribe to their relevant investor compensation fund. These compensation funds act as security in case brokers cannot meet client obligations for whatever reason. Under CySEC regulation, for example, the ICF covers private traders for amounts up to €20,000. If a CySEC broker goes out of business for whatever reason, then individual traders would recover funds up to the €20,000 maximum from the ICF. The equivalent compensation amount for brokers regulated under the FCA is £50,000.
Setting up a forex or CFD broker in a regulated jurisdiction also involves the appropriate recording of directors and shareholders. This recording adds an extra level of security for traders. Regulated brokers are in the public record and have a “face” of ownership, unlike unregulated brokers who can hide behind any name they choose to.
The cost of setting up a regulated broker is another crucial factor to take into account, as well as the provenance of these funds. In any appropriately regulated jurisdiction, the authorities will perform their due diligence not only on the activities but also on the directors of the company.
All this oversight makes for a far more secure environment for traders. Promoting a regulated broker is an easier “sell” for affiliates as all the ingredients are already there.
The best place to start is with your Forex Ads AM. Reach out to us, and we’ll have all the answers you need. We’re only as good as our affiliates, so get in touch, and we’ll get you moving in the right direction!