Is Overseas FX Illegal? | What the FSA's List of Unregistered Operators Means and Where to Consult When Trouble Occurs
After hearing that "overseas FX is illegal," you may be wondering whether the broker you use is all right.
However, when it comes to overseas FX, the registration of the broker and the user's own trading need to be considered separately.
In Japan, businesses that conduct financial instruments business are required to register with the Financial Services Agency (FSA). Meanwhile, some overseas FX brokers operate not in Japan but under financial licenses and regulations of other countries.
This article explains in an easy-to-understand way the differences in the rules that apply in Japan and overseas, how to read the FSA's list of unregistered operators, and what to check when using overseas FX.
Table of Contents
- Why Is Overseas FX Said to Be "Illegal"?
- The Rules That Apply to FX Brokers Differ Between Japan and Overseas
- What Is the FSA's List of Unregistered Operators?
- What Users of Overseas FX Should Be Careful About
- Where to Consult When Trouble Occurs
- 4 Points to Check Before Choosing an Overseas FX Broker
- Frequently Asked Questions About the Legality of Overseas FX
- Summary: It Is Important to Understand How Overseas FX Works Before Choosing
Why Is Overseas FX Said to Be "Illegal"?
You may see the expression "overseas FX is illegal," but in reality the matter is a little more complicated.
What is often discussed is not overseas FX itself but whether the broker is registered with the Financial Services Agency in Japan.
In principle, businesses that conduct financial instruments business in Japan are required to register with the FSA. The FSA has also issued warnings about overseas operators that solicit customers in Japan without registration.
However, this concerns the registration of the broker.
It is not the case that an individual is uniformly prohibited from opening an account with an overseas FX broker and trading with their own funds.
For that reason, the registration obligation with the FSA concerns the broker side, and the broker's registration status and the user's own trading need to be considered separately.
What users should be careful about is, rather, taxes on profits and cases such as giving investment advice to others. These are explained in detail later.
Registration With the FSA Is Required of the Broker
When providing financial instruments trading services such as FX in Japan, businesses are required to register with the FSA.
Even a broker based overseas can face a question of registration, depending on how it provides services in Japan.
The Rules That Apply to FX Brokers Differ Between Japan and Overseas
Japanese FX brokers and overseas FX brokers differ in the regulations and trading conditions that apply to them.
For example, for over-the-counter FX offered to individuals by brokers registered in Japan, leverage is limited to a maximum of 25x.
Overseas FX brokers, on the other hand, operate in accordance with the financial licenses and regulations of their own countries and regions. As a result, they may set leverage and trading conditions that differ from those in Japan.
Also, to be registered in Japan, a broker must meet not only trading conditions but also requirements matching Japanese rules, such as a domestic base and operating structure.
In this way, even for the same FX trading, the rules that apply to the broker differ between domestic FX and overseas FX.
Japanese Registered Brokers Offer Leverage of Up to 25x
For over-the-counter FX offered to individuals by FX brokers registered with the FSA in Japan, leverage is limited to a maximum of 25x.
This is a rule that applies to the broker, so users cannot change it after opening an account.
The large difference in leverage between overseas FX and domestic FX comes from these differences in regulation.
For example, with the same margin of ¥100,000, you can trade ¥2,500,000 worth at up to 25x, or tens of millions of yen worth at several hundred times. The higher the leverage, the larger the amount you can move with less capital.
On the other hand, the larger the amount you can move, the greater the impact when the market moves against you, so be careful to manage your funds with some margin.
High leverage is often cited as a reason for choosing overseas FX. If you decide the amount you will trade in advance, you can avoid holding a larger position than necessary.
A Foreign Company Needs a Domestic Base to Register in Japan
When a company headquartered overseas obtains registration for financial instruments business in Japan, it must set up a business base in Japan.
Therefore, to register in Japan, it must not only prepare a base but also put in place the personnel and management structure needed to conduct the business.
Furthermore, even after registration, it is required to operate in line with Japanese rules, such as submitting reports and responding to inspections.
To be registered in Japan, a company must align not only its trading conditions but also its domestic base, personnel, and management structure with Japanese rules.
The Supervisory Framework Also Differs Depending on Whether a Broker Is Registered in Japan
Brokers registered with the FSA in Japan provide services in accordance with domestic rules and are supervised by the FSA.
For overseas operators not registered in Japan, on the other hand, the FSA may issue a warning and publish the operator's name when it confirms unregistered solicitation or the like.
For that reason, when looking at an overseas FX broker, it is important to check not just "whether it is an overseas operator" but also its registration status in Japan and under which country's regulation and license it operates.
What Is the FSA's List of Unregistered Operators?
The FSA publishes a list of operators that it has warned for conducting financial instruments business in Japan without registration.
This list can be checked on the FSA's official website and includes operators that have been issued warning notices since January Heisei 22 (2010).
What Is Listed Are "Operators That Received a Warning"
The operators on the list are those that have received a warning for unregistered business from the FSA or a Local Finance Bureau.
Because entries range from old to new, the list does not consist only of operators that are still operating under the same name today.
Also, being listed does not itself mean the business has been suspended. There are cases where services continue after the warning.
So, when you look at the list, it is important to check not only whether a broker is listed but also when it received the warning and what its current situation is.
What Users of Overseas FX Should Be Careful About
When using overseas FX, you need to be careful not only about the trading itself but also about taxes after you make a profit and acts involving other people's money or trades.
In particular, do not forget to report the profits you earn in your own account.
Overseas FX Profits Must Also Be Reported
When a resident of Japan earns a profit from overseas FX, that profit is in principle subject to tax.
How you report it depends on your income situation and the amount of profit.
So that you can check later, it is a good idea to keep records such as annual profit and loss, deposit and withdrawal history, and trade statements.
Be Careful When You Are Involved in Other People's Trading
Trading with your own funds in your own account is treated differently from being involved in other people's trades or funds.
For example, if you receive a fee for advising on the timing of trades, or take money from others and manage it, registration for financial instruments business may be required.
In addition, selling automated trading programs, offering copy trading, and soliciting investment to manage funds can also be subject to regulation depending on the details.
For example, merely posting your own trading results on social media does not necessarily amount to investment advice by itself. On the other hand, if you continuously distribute specific trade timing in a paid salon or the like, the situation changes.
When you use overseas FX, it helps to keep in mind that trading for yourself and being involved in other people's trading are separate things.
- Taking money from an acquaintance and trading on their behalf falls under the same issue. The same applies even if you took it on at their request.
- Automated trading programs are also treated differently depending on whether you build one for your own use or sell it to others. Check before you start selling.
- Receiving a reward for introducing accounts is also treated differently depending on how the reward is received and what the introduction involves. Check before you start.
Where to Consult When Trouble Occurs
If you use overseas FX and have questions about deposits, withdrawals, your account, or trading, first check with your broker's support.
For matters the broker can confirm, such as waiting for a deposit to be reflected, withdrawal procedures, and identity verification, contacting support can sometimes resolve the issue.
If it is still not resolved, or you cannot judge it from your exchanges with the broker alone, you can use an external consultation service suited to the nature of the trouble.
Choose Where to Consult Depending on the Matter
Where to consult depends on what you want to check.
- To check on financial services or systems: Financial Services Agency (FSA) Financial Services Users Helpline
- To consult about a contract or service: Consumer Hotline 188
- To consult about trouble with an overseas business: Cross-border Consumer Center
- If you suspect damage from fraud or the like: the police consultation desk
- If you are considering refund negotiations or legal action: a lawyer
What matters is not to leave a problem as it is when it occurs, but first to sort out the situation.
If you keep trading history, deposit and withdrawal records, and your exchanges with support, it becomes easier to explain your situation not only when contacting the broker but also when consulting an external service.
What Each External Service Can Do Differs
What each consultation service can handle differs.
Some services provide guidance on systems, some let you consult about trouble with a business, and there are specialists you can ask to handle legal procedures.
So it is best to first sort out what is troubling you and then choose the service that fits your purpose.
If your withdrawal requests keep failing to go through, the cause may be the broker's procedures or conditions. If you would like to know how to narrow down the cause, please also check this article.
4 Points to Check Before Choosing an Overseas FX Broker
When choosing an overseas FX broker, look not only at leverage and bonuses but also at the operating company, license, fund management, and withdrawal conditions.
Even just looking at the official website lets you check to some extent.
1. Which License Does It Hold?
The first thing to check is which country or region's financial license it holds.
Most overseas FX brokers establish a company in a country or region other than Japan and operate in line with local regulations.
If the official website states the issuing authority and registration number of the license, it is a good idea to check where it was obtained.
It is easier to understand how a broker is run when the issuing body and registration number are disclosed, compared with when it only says "financial license obtained."
2. How Are Customer Funds Managed?
What you should check before depositing is how customer funds are managed.
A commonly used method is "segregated management," in which the company's operating funds and the funds held for customers are managed separately.
Management methods differ by broker, so check the company information and terms of use on the official website.
If you cannot find a statement, asking support to confirm is also one approach.
3. Are the Withdrawal Conditions Clearly Stated?
With overseas FX, it is important to check not only deposit methods but also withdrawal conditions in advance.
What to look at in particular is the withdrawal fee, minimum withdrawal amount, processing time, and conditions when using a bonus.
Also, the withdrawal methods you can use are sometimes determined by the deposit method.
Rather than checking for the first time after you make a profit, reading through it once before opening an account or depositing makes it easier to avoid trouble at withdrawal.
4. The Operating Company and Support Structure
Lastly, check the information on the company that operates the service.
Whether the official website lists the company name, address, and contact details is one checkpoint.
It also helps to look at whether Japanese-language support is available, how to contact them, and their hours.
If several contact methods such as chat and email are available, it can be a good idea to try contacting them once before you actually open an account.
When comparing overseas FX brokers, do not decide on good trading conditions alone; it is important to check everything, including the license, fund management, withdrawal conditions, and support structure.
Frequently Asked Questions About the Legality of Overseas FX
Summary: It Is Important to Understand How Overseas FX Works Before Choosing
"Overseas FX is illegal" is sometimes said as a blanket statement, but in reality the registration of the broker and the rules that apply in Japan need to be considered separately.
When choosing an overseas FX broker, look not only at leverage and bonuses but also at the financial license, operating company, how funds are managed, withdrawal conditions, and support structure.
Also, as a user, understanding in advance matters such as taxes on profits and the rules for deposits and withdrawals will help you trade with greater peace of mind.
EdgeGraph FX publishes information on its operating company, financial license, trading conditions, and deposits and withdrawals on its official website. If you are considering using it, check each item and judge whether it suits your own trading style.
The EdgeGraph FX useful columns also introduce basic knowledge about overseas FX withdrawal methods, taxes, and trading. If you have questions when using overseas FX, please refer to those as well.
