The recent past financial scandals in the Netherlands resulted in the creation of a demand in the people to tighten regulation of the forex brokers. This ultimately resulted in some of the most restrictive laws on brokers in Europe. The retail investor loss and questionable broker practices took several high-profile cases that resulted in political action beyond the customary EU requirements. The AFM reacted by enacting regulations which, according to many analysts in the industry, are considered over-protective, but according to consumer protection lobby groups, help prevent exploitation of novice traders.
Political conservative views on financial risk have influenced regulation strategies that focus on risk rather than market innovation or competitiveness. Dutch policymakers are inclined to see forex trading as something that causes harm to retail investors, and they create regulations that presuppose traders must be protected from their own actions. Such a paternal vision contrasts with more market-friendly jurisdictions that focus on personal responsibility and informed consent instead of blanket prohibitions.
The power of the banking sector is an important determinant of the strict control over bank brokers, which arguably benefits traditional financial institutions. The bankers of the Netherlands have traditionally resisted internet-based trading systems and foreign-based brokers that provide services beyond the traditional banking relationship. The complexity of the regulations is one of the barriers to entry that shields the position of established players and restricts the choices of Dutch investors seeking alternative trading solutions.
Consumer protection agencies have lobbied the government to adopt rules that make forex trading by retail investors resemble gambling rather than a legitimate investment activity. Their advocacy focuses on preventing problem trading behavior and decreasing household debt from leveraged positions. Although these intentions seem logical, the resulting regulations often confuse experienced professionals and novices alike, frustrating traders who understand market risks.
The problem of regulatory capture applies in explaining why the AFM regulations benefit big financial institutions and source the compliance costs of smaller forex broker units, which find it to be difficult to comply. Cost of obtaining and maintaining Dutch licensing has increased considerably and has blocked representation to highly intellectualized firms which are capable of investing in giant juridical and legal dormant facilities. This concentration reduces competition and may at times prove harmful to the consumer through increasing the prices and reducing the choices.
Pressure from the European Union has provoked the Netherlands to adopt more conservative stances regarding retail trading, as Dutch regulators tend to interpret general EU directives in the strictest way. ESMA regulations are applied with additional local requirements compared to other member states. This philosophy treats stringent regulation as intrinsically valuable, even at the cost of market efficiency or economic growth.
Regulatory strictness also has cultural roots because Dutch society leans toward collective protection rather than individual financial risk-taking. Social democratic traditions emphasize avoiding exploitation of vulnerable people, even if it restricts options for sophisticated players. In this aspect, Dutch laws usually go further than what economic analysis would provide as the best market functioning.
These regulatory requirements have complicated the attempts of Amsterdam to lure post brex financial institutions, and these demanded requirements are unnecessary when compared to locations such as Ireland or Luxembourg as far as many forex broker firms are concerned. The AFM enforcement is more one-sided towards the aggressive approach to the intervention instead of co-operation with industry stakeholders. Regulators tend to make rules based on a wide consultation, which makes them create compliance costs that do not always enrich consumer conditions. This approach demonstrates a lack of confidence in publicly held risk management abilities and market mechanisms.