Who Regulates Gold Trading?
Gold has been traded throughout its existence and it would seem odd that there wouldn’t be one global body to regulate its trading; instead, we rely on various federal and state laws which vary greatly in how they treat this precious metal.
In the US, this includes the Consumer Financial Protection Bureau’s rules that protect investors against boiler rooms and scams as well as various niche mining laws such as General Mining Act or niche Mining Statutes.
Financial institutions that sell gold products are subject to numerous federal and state laws, including those enforced by the Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission. Financial institutions selling these products must abide by stringent disclosure requirements and give accurate product information to customers when selling. To aid its members comply with this legal mandate, LBMA has developed various tools which help meet compliance. Furthermore, their Gold Supplement requires increased due diligence for recycled gold sourced from high-risk countries by conducting enhanced due diligence on recycling operations that provide ultimate beneficial ownership information on recycled gold recycled back into commerce.
No matter its regulations, gold trade is subject to various risks. One of the primary concerns involves its connection to conflict-related groups or terrorist organizations; thus prompting companies affiliated with sanctioned individuals or networks to be designated, as this effort aims to deprive these entities from reaping any financial gain from gold-related activities.
Gold has been mined, traded and sold since 148 years. But there is no one-size-fits-all global oversight committee or group charged with overseeing how it’s mined, traded and sold; each country sets their own – often complex – regulations.
Many regulations imposed costs on market participants and designed to increase resilience of the financial system, but may increase fraud risks and criminal activity, leading to unintended effects such as reduced liquidity in markets.
Individuals and entities should carefully read through the OECD framework and its related reports, considering their application to their business models. This will enable them to identify, assess and mitigate financial crime risks at every step in their supply chains – such as using gold to bypass sanctions, avoid taxes or engage in money laundering or terrorist financing activities – thereby helping prevent reputational or commercial harm and damage.
Dealers selling bullion and paper gold instruments are subject to various international regulations and pricing mechanisms such as Zurich Gold Pool. Members of this Pool include bullion bankers, dealers who match transactions for commission or buy and sell on spread basis, brokers as well as bullion bankers.
Bullion dealers typically hedge by selling forward contracts near the spot price to ensure a guaranteed floor price for their customers, helping to prevent losses should prices decline unexpectedly.
Contrary to Registered Investment Advisors (RIAs), which must comply with specific rules prohibiting testimonials and endorsements, dealers have more flexibility in their marketing strategies. Safeguard Metals – which has been accused of defrauding elderly investors out of $67.5 million – found leads through advertising on conservative political radio shows hosted by Sean Hannity and Mark Levin as long as the company did not give investment advice.
Investors play an essential part in regulating the gold trade by purchasing bullion or commodities such as ETFs or mining stocks, but must remain wary of falling victim to scams in this field – whether this involves inflating product values falsely or engaging in high-pressure sales tactics aimed at customers. A number of state and federal agencies oversee this market in the U.S.
The Commodity Futures Trading Commission (CFTC) regulates futures contracts that allow traders to speculate on gold price movements without actually owning physical gold. Furthermore, they have stringent rules against market manipulation and provide investors with protection from fraud.
In September and October, Sebi issued warnings to registered brokers and investment advisers that offering digital gold or other unregulated investments would violate Sebi Act and result in either monetary penalties or licence cancellation. To avoid these penalties, digital gold must be classified as security.
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