Global technological progress accelerates the exchange of information, the development of international trade and investment activities, the integration of various economies into the international capital market, simplifies and improves the interaction between traders/investors and exchanges, and makes it possible for almost anyone to trade from a computer or even a smartphone.
The Forex market is a global, decentralized, most liquid financial market in the world for currency exchange. According to data from the Bank of International Settlements, the daily volume of transactions in this market in 2022 was 7.5 trillion dollars.
Forex is an over-the-counter market that provides trading relationships between participants market worldwide, including central, commercial, investment banks, pension funds, brokers and dealers, insurance companies, multinational corporations, and private individuals.
Trading on the Forex market is carried out by brokers – professional intermediaries who must have a license to carry out such activities.
Brokerage activities are regulated and licensed by local financial regulators or independent professional bodies, such as the Financial Conduct Authority (FCA) in the UK or the Securities and Futures Commission (SFC) in Hong Kong.
In each country, the Forex market regulator acts within its jurisdiction, establishes regulatory requirements, rules, and standards for participants’ market, in ago number of license requirements to Forex brokers.
IN connection with the hereby, the procedure, terms, cost of obtaining a brokerage Forex license, and requirements to licensees depending on jurisdiction and financial regulator may differ.
However, the unification of international legislation leads to the establishment of general requirements that licensees must meet, namely, regarding:
- registered companies and activity in jurisdiction regulator;
- financial stability (paid statutory capital and license meeting);
- systems protection and security funds customers and their personal data;
- flawless business reputation and professional suitability responsible person companies;
- compliance requirements local regulators and international currency legislation;
- compliance with “know your customer”, “anti-money laundering” and “anti-terrorist financing” policies (KYC/AML/SFT);
- approved business plan (strategies development in a few years )
- corporate and trading accounts in Financial
In order to understand and decide which regulator to contact for obtaining a brokerage license in the Forex market, you need to answer the following questions:
- what is the company’s budget for obtaining a license (the cost of obtaining a license and requirements for authorized capital can range from 1,000 US dollars to tens of millions) ;
- in whose regions/countries the company is planning lead activity;
- accessibility financial services ( possibility of opening corporate and trade accounts) ;
- which currency rules and system taxation the chosen jurisdiction;
- what are the licensing conditions ( requirements of the regulator regarding license fees, authorized capital, reporting procedures, audits, etc.) ;
- which deadlines consideration documents (maybe last from several weeks to several years) ;
- requirements to the real office and qualifications employees;
- international reputation jurisdiction and license among participants
It is better to entrust the answers to these questions to experienced practicing lawyers, which will significantly speed up the process of choosing and making the best decision for your business.
After we have decided on the basic requirements for licensees and the criteria that must be taken into account when choosing a jurisdiction, it is time to mention the advantages of having a Forex brokerage license.
So, here list of key benefits that you can get at the availability of such a license:
- Legality and trust – A forex license gives the legal right broker to carry out financial services on the international currency market, which ensures a high level of trust on the part of investors, partners, and clients. The licensed broker has passed the inspection of the regulator, is under its constant control, and must comply with licensing requirements and financial legislation.
- Access to international markets is an important tool for spreading your activities to international markets, attracting new audiences, and increasing profits;
- Technological advantages – licensed brokers get access to advanced trading platforms (MetaTrader 4 and 5, cTrader, NinjaTrader, etc.), the best graphical accounting and market analysis tools, which significantly affects the speed and quality of providing brokerage services;
- Financial advantages – having a license opens the door to interaction with the best financial institutions and licensed payment service providers (PSP);
- Investor protection – regulators establish standards of safety and protection of client funds, ensuring the reliability of financial transactions, and in case of disputes between clients and the broker, the regulator acts as an independent arbiter.
- Reduction of legal risks – availability of license and compliance requirements regulator give you can avoid legal problems and fines. Carrying out brokerage activities without a license in many countries is considered an illegal business with corresponding consequences.
In this article, we analyzed the general aspects of the regulation of brokerage activity on the Forex market, considered the requirements for licensees, the main aspects of choosing a regulator, and also noted the advantages that a licensed Forex broker receives.
In the following publications, we will continue to explore this topic, consider it in more detail, and compare the requirements imposed by regulators on forex brokers in different countries and other nuances of conducting this business.
The lawyers of the company “Prшkhodko and Partners” are ready to analyze your business case into quarks, provide comprehensive answers to your questions, and offer individual solution strategies that will meet your capabilities and priorities.
We are always in connection and are ready for new challenges!