Definitive guide to Forex Licensing and Regulation

Forex Licensing

Points to consider:
1. Cost estimation
2. Capital requirement
3. Time estimation of acquiring license

 

FCA ­ United Kingdom


What exactly does the FCA do when it comes to regulating the retail FX / CFD industry?
Protecting Consumers: One of the main roles of the FCA is to protect consumers and ensure that consumers don’t become victims of scams or end being tied into unfair contracts. Supervise Firms: The organisation plays a significant role in supervising the activities of regulated firms. With the FCA performing regular assessments of firms conduct, with the largest firms being continuously assessed over rolling two year periods.
Fines and Disciplinary Action: The FCA has the power to fine investment services firms which breach UK regulatory law, these fines can be substantial and are a powerful tool when disciplining and encouraging firms to operate within the law. In addition the FCA has the power to revoke a firms operating licence should the regulatory breaches be particularly severe or the FCA doesn’t feel the firm will implement changes to prevent future breaches.
Warnings: The FCA regularly releases warnings regarding the operation of unregulated firms. This helps protect consumers from doing business with unregulated firms and is an important part of consumer protection. You can find warnings regarding unregulated firms here.

What is the FCA?


Prior to April 1st 2013 financial services regulation in the United Kingdom was handled by the Financial Services Authority (FSA). In the wake of the 2007­08 financial crisis the UK government decided to restructure financial regulation, ultimately leading to the abolishment of the Financial Services Authority. The Financial Services Authority (FSA) was replaced by two new organisations, the Financial Conduct Authority (FCA) and the Prudential Regulatory Authority (PRA) which is part of the Bank of England.

The Prudential Regulatory Authority is responsible for the prudential regulation and supervision of Banks, Building Societies, credit unions, insurers and other major investment firms. The Financial Conduct Authority has a different mandate and is primarily concerned with the regulation of firms which provide financial services. Any organisation that provides both banking and other financial services will be required to be regulated by both organisations.
Under the new regulatory arrangement the provision of retail FX services is something which is handled by the Financial Conduct Authority. The organisation is also responsible for the regulation of other trading products including CFD’s (Contracts for Difference) and Financial Spread betting. In addition to regulating the provision of the above trading products, the Financial Conduct Authority is responsible for regulating wide array of different of financial products.

FCA: The European Gold Standard?


Many Forex traders see FCA regulation as the gold standard of European financial regulation and prefer if possible to only trade with firms regulated by Britain’s Financial Conduct Authority. Why is the FCA so popular with retail trader? It is partly due to the fact that British financial services regulation goes above and beyond the minimum standards set out by the EU’s Markets in Financial Instruments Directive (MiFID). For instance the FCA has more demanding capital requirements than the minimum demanded by MiFID, while a number of jurisdictions opt for the bare minimum required by the EU directive. Additionally the UK’s investor compensation scheme offer more protection than the minimum laid out in MiFID providing £50,000 of cover should a brokerage collapse financially. The FCA is also at the forefront when it comes to regulating new products with it being suggested that the FCA may become the first EU financial regulator to seriously scrutinize copy trading and require the social trading platforms to be regulated, as they may constitute a form of portfolio management
While this can make it significantly more costly to operate from the jurisdiction, many firms see being regulated and based in the United Kingdom as a significant advantage when it comes to marketing their services to potential customers. There has been a trend in recent months for brokerages based in other EU jurisdictions to seek a FCA licence in addition to their current regulatory licensing from a MiFID regulatory body, with CySEC regulated eToro and Estonian regulated Admiral Markets both having recently acquired a full FCA licensing.
There are so many more brokers applying for a CySEC license that is essentially the same as the FCA one, and those who possess it can accept UK­based individuals, that we recommend the following:

CySec ­ Cyprus


The financial services regulatory body in Cyprus is the ‘Cyprus Securities and Exchange Commission’ (CySEC). Being a member of the EU, Cyprus is in full compliance and duly harmonized with the EU Markets in Financial Instruments Directive (MiFID).
During the last 5 years Cyprus has established itself as an excellent Forex environment and a financial services jurisdiction. Cyprus’ EU membership and its MiFID harmonized status enables CySEC regulated Firms to an immediate access and easy set up in prestigious financial markets within the EU (London, Frankfurt etc.).
Our team of regulatory lawyers and compliance consultants guide our clients on setting up their FX Investment Brokerage business and Market Making firms under CySEC (MiFID), and operate as duly licensed and regulated investment services firms from Cyprus in the EU, Russia, the Middle East, Africa, Asia or other third countries.

Cyprus FX in bullet points:


Regulatory Body: Cyprus Securities and Exchange Commission (CySEC)
License: Cyprus Investment Firm (CIF)
EU Directive Regulating Investment Firms operating in the EU: Market in Financial Investments Directive (MiFID)
Cyprus law applying MiFID: Cyprus Investments Services and Activities and Regulated Markets Law 144(I)/2007, as amended
Services that a CIF covers, and capital requirements:
“One­Stop­Shop” Service Our team acts as “one­stop­shop” service provider offering the whole set up, from the preparation, drafting and submission of the application to CySEC to on­going post­submission support up to granting of the EU MiFID CySEC license, authorising therefore the Investment Firm to provide investment services in the EU according to the applicable laws, and post­licensing support.

FSP ­ New Zealand


New Zealand is a jurisdiction which continuously evolves and restructures its’ FSP rules and requirements. During 2012 over 250 New Zealand FSP registered companies were de­registered due to their inability or failure to follow up the new FSP rules. The loss of these entities has been catastrophic.
Choosing the right team to assist you in setting up your New Zealand FSP is now of vital importance. We aim in establishing our clients in the New Zealand for good and for ever. Our AGP group of consultants, lawyers and regulatory experts in the New Zealand have excessive experience, in­depth knowledge and long­term success rates on registering and maintaining FSP registrations for our clients.

New Zealand FSP registration is now strongly recommended by our Firm for a number of reasons. Low cost, no capital requirements, no income tax (subject to advance planning), fast process (up to four weeks) and professional regulatory authorities places New Zealand FSPRs to the top of the range for reputable Forex registration.

IFSC ­ Belize


The International Financial Services Commission (IFSC) is the regulatory body in Belize, responsible for the review and issuing of Belize forex licenses. The IFSC licenses are issued to financial companies which intend to engage in forex activity provided they meet certain criteria as required by the IFSC, this many include capital adequacy and fit and proper tests.

Before you can obtain your Belize forex license you must form a company in Belize for the sole purpose of carrying our forex & commodities brokerage activity. The application form for the forex license must be submitted to the IFSC along with the relevant documents including; Memorandum and Articles of Association, company manuals for internal and external procedures, your fit and proper test results, and your company business plan.