13 October 2016

Forex Broker Jurisdiction types and Regulation

How to choose Forex jurisdictions, consider regulation and obtain licensing – Part 1


 

Choosing a suitable jurisdiction to establish a Forex broker company, is a key business decision that requires taking many parameters into consideration including a set of regulatory procedures and compliance with domestic, community and international provisions and requirements.

So, before you start planning and structuring your business you need to consider which regulatory jurisdiction offers you the best options to run your business. 

Forex market is growing every day, numerous Forex brokerage companies are becoming active and being licensed in an increasingly regulated, competitive and demanding setting.That is why each case should be analyzed properly, since one or more factors may play a decisive role.

Below, we present the main criteria to consider when choosing the most appropriate forex jurisdiction for running the business:

 

Registration and maintaining cost


Costs depends on the jurisdiction you might have a really high cost when registering a new entity and a numerous of procedures involved. Some jurisdictions are well known for their low fees and requirements, which means the incorporation process is easier and less time consuming.

Broker licenses


Although there are few offshore jurisdictions where Forex brokerage firms are not regulated, the list is constantly shrinking and many brokers need to make a crucial decision whether to run a regulated business and which jurisdiction is best for their business needs.

The broker license is pretty expensive and obtaining it takes time (from several weeks to a year). However, you must be aware that doing business in an offshore jurisdiction where Forex is unregulated might be negatively viewed by your partners (investors, clients and banks).

With a License you can:

  • provide any investment service and hold and control Clients’ Money or Customers Assets;
  • maximize profit through low or zero corporate tax;
  • operate around the globe;
  • provide higher sales commission percentage splits;
  • obtain a license from top regulators such as MFSA, FSP, CySEC and therefore dominate the Forex market.

Political system stability


Be sure that the chosen country has a legal system, transparent economic policy and a stable currency without restrictionson the repatriation of investments. Moreover, there shouldn’t be any risk that a new government coming to power or under international political pressure the tax exemption might be chosen or any other political factors which might affect the business.

Tax regime


Some offshore regimes have lower taxes, but there are some, with the status of zero taxation. However, tax exemption, is not always the decisive factor.

Black lists


A list of jurisdictions that are considered as a no cooperation at a global level in a global fight against money laundering and terrorist financing.  This list is regularly updated by the Financial Action Task Force (FATF).

 

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