FOREX jurisdiction

In the previous publication ” Forex in the Law: The Path to a Broker’s License” we began to investigate how the international currency market Forex is regulated.

Considered the general requirements of regulators to forex brokers, which points should be paid attention to when choosing a jurisdiction, and key benefits of owning a Forex broker license.

In this article, we will focus on the features of licensing and regulation of activities on the Forex market in different countries.

The choice of the “right” jurisdiction is an important factor for the successful and legal activity of forex brokers, which affects the company’s reputation and the attraction of new clients, and guarantees the stability and reliability of the brokerage business.

In each country, the requirements for licensees have their own specific features, which depend on national legislation, the policy of the local regulator, and the types of services that the brokerage company plans to provide.

For countries, that regulate Forex activity conditionally you can share the following categories:

Categories A (“Premium”)

This category includes the regulation of Forex activities in the USA, Switzerland, and Japan. The licenses of these countries, in addition to providing access to the largest foreign exchange markets, are the most prestigious and recognized in the world and have their drawbacks, namely: a long and meticulous procedure for the review/verification of documents and high requirements for authorized capital.

In order to start working on the American currency market, the company must obtain a Retail license Foreign Exchange Dealer (RFED).

In the USA, the Forex market is regulated by the Commodity Futures Trading Commission (CFTC) and The National Futures Association (NFA), which protects the rights of investors and issues licenses for brokerage activities. All registered brokers must be members of the NFA.

The process of issuing a license is accompanied by a thorough check of documents and information of the applicant, sources of the company’s capital, personal information of the founders and beneficiaries, professional training (certification) of key employees, etc. The licensee’s authorized capital requirements are $20,000,000, and annual fees to the NFA are $100,000.

The Swiss Financial Market Supervisory Authority (FINMA) is responsible for the Swiss financial system. Swiss-licensed brokers have bank status and are subject to the same strict controls as banking institutions, and the CEO must obtain a recommendation from the previous Board of Directors.

The procedure for receiving a license in these countries may last from one to two years

Categories B (“Universal”)

The categories of countries with a good reputation, optimal requirements for authorized capital, moderate maintenance costs, and reporting requirements include Great Britain and Australia. The Financial Regulation and Supervision Authority (FCA) is the main regulator of financial services in Great Britain. To obtain a license, the applicant must meet the following conditions:

• have founded in the jurisdiction of the company and local office;
• comply with capital requirements (125,000 EUR for STP license and 730,000 EUR for Market Maker license or Dealing broker desk );
• have a local experienced and professional director who must undergo FCA testing and a special approval process.

The Australian Securities and Investments Commission (ASIC) is the regulatory body that oversees Forex brokers doing business in Australia.

ASIC obliges forex brokers to register a local company; maintain a minimum level of capital, which, depending on the type of license, ranges from 50,000 Australian dollars to 1 million or more; comply with reporting and audit deadlines; apply for an Australian Money Transfer and Services License (AFSL) with detailed disclosures regarding the business plan, compliance procedures, and risk management systems.

The term for receiving licenses in Big Britain and Australia is from 6 months to 1.5 years.

Categories WITH (“Popular”)

Countries with a favorable tax environment and a high level of economic and legal development systems, are available for companies whose activities are aimed at the European market – Cyprus and Malta.

Cyprus’s official regulator is the Commission with Valuable Papers and Exchange (CySEC). Cyprian, there is a regulator one of the main regulatory bodies on financial markets in Europe, especially concerning the activities of forex brokers.

To obtain a license, the company must have a registered office in the country, local directors with higher education and work experience in this field, and comply with the requirements for the minimum authorized capital (125,000 EUR for STP license and 730,000 EUR for Market Maker license ).

The license extends to all forex projects within the jurisdiction. The license can be obtained by companies classified as participants of the securities market at the professional level with coverage of the Forex market. After obtaining a license, the company has the right to manage portfolio investments, engage in investment consulting, receive and execute orders, and work with investments and financial instruments.

CySEC-licensed companies are registered in the official register of brokers and have the right to legally conduct their activities in all member states of the European Union.

The jurisdiction has a corporate tax of 12.5%, there are no obligations to pay tax on dividends, and there is a developed network of international agreements to avoid double taxation.

License you can get for 6-10 months

Category D (“Offshore”)

Mauritius, Seychelles, and Vanuatu – these countries attract forex brokers with simplified level of regulation, lack of audit, minimum requirements for authorized capital, increased level of confidentiality of private information, low or zero tax rates, and access to a wide range of financial services.

One of the most affordable options is a Vanuatu license issued by the Vanuatu Financial Services Commission (VFSC). A company planning to obtain a license must have a local office, a director with experience in the financial field, and pay a deposit of 50,000 US dollars and a registration fee. The term of obtaining a license is from 1 to 3 months.

On Vanuatu works 4 types of licenses for work forex – companies:

• A – work with suppliers and debt tools in currency other countries;
• B – work with shares of corporations, precious metals, or goods;
• С – work with futures and derivatives products;
• D – work with cryptocurrencies.

To work with cryptocurrencies necessary to first get license types A, B, and C.

It should be noted that the disadvantage of these jurisdictions is the potential problems when opening bank accounts, connecting fiat payment systems, and establishing relationships with liquidity providers, as these countries are classified as offshore and can be used for tax evasion.

Summarizing the above and based on our own professional experience, when choosing this or that country and the appropriate regulator, we recommend taking into account your financial resources and costs for activity licensing, business development strategy, prestige and accessibility of the jurisdiction, taxation system and level of control by regulatory authorities, as well as many other nuances and bureaucratic procedures.

Having studied your business plan in detail, taking into account your budget and wishes, our lawyers will certainly offer you the optimal jurisdiction, prepare the necessary package of documents, and provide full legal support for the procedure of obtaining a forex brokerage license.