|Learn More about Forex Regulation: Forex Broker Regulation|
The MiFID (‘Markets in Financial Instrument Derivatives’) directive is a European Union law that enables companies that are authorized to carry out regulated activities in a member state to become authorized to do so in other EU member states. This provides a degree of supervision without the need for registration with regulatory bodies in each individual country.
The following explanation is taken from the website of the UK’s Financial Conduct Authority (https://www.the-fca.org.uk/passporting):
A firm authorised in an EEA state can offer certain products or services in the UK and other EEA states if it has the relevant passport. In most cases the firm will still be regulated by its home-state regulator. You should check about things like complaints and compensation when dealing with an EEA-authorised firm on the Financial Services Register, as they may differ from a UK-authorised firm.
When we receive a notification, we look at the risk that an incoming firm presents (we get this information from the home-state regulator) and whether the firm meets our requirements under the relevant directive.
In some cases, we may think that the firm is a risk, but it still meets the relevant directive requirements, and can therefore conduct business in the UK. When this happens, we will work with the home-state regulator to mitigate any resulting risks.
As an investor, regulation via the MiFID directive should be considered a strong guarantee of the conduct of a brokerage firm, though it does not offer quite the same level of security as if the broker was regulated in your country of residence.