Getting a Forex license in 2021

Getting a Forex license in 2021

To enter the Forex market, a specialist necessarily needs a Forex broker license. It is impossible to work legally without this document. Our article is devoted to an overview of the demanded jurisdictions and the rules applied there. Our main question can be formulated as follows: where is it more profitable to get a Forex broker license and what do you get there.

In fact, you can get a Forex license in almost any country in the world, so the choice is colossal. However, it should be noted that licenses from different countries give you different opportunities, different degrees of market access, while the requirements for obtaining them and the cost are also significantly different. It is customary in the world to divide countries into categories based on the complexity of the registration process, the price of the issue and the image of the jurisdiction itself that issues the document.

Here are the main categories and their representatives:

TypeRepresentativesBrief description
АUSA, SwitzerlandVery strict requirements for candidates, the cost of the license is maximum, serious requirements for the authorized capital. Nevertheless, they provide excellent protection of the client’s rights, there is a developed legal framework. The best reputation in the market
ВUK, AustraliaGood guarantees for clients, equity requirements range in the hundreds of thousands of dollars, good financial regulations, and good reputation among clients.
СCyprus, New ZealandSimplified requirements for reporting and auditing, customer protection system works worse than those of B and C, but still there is a certain authority in the market.
DBelize, Vanuatu, Cayman Islands, SeychellesThe rules for registration are as simple as possible, the amount of capital required can be up to $ 1000, while there is almost no reporting and control by the regulator. High risks for clients, low level of trust.

 

Type “A” countries

Therefore, this category includes jurisdictions such as the United States of America and Switzerland. Local regulators, the Commodity Futures Trading Commission (CFTC) and the National Futures Association (NFA) in the United States and the Swiss Financial Market Supervisory Authority (FINMA) in Switzerland are considered the most respectable in the world, and their requirements are the most severe.

For example, in the United States, in order to obtain a forex license, you have to deposit 20 million USD (guaranteed capital), your office must be located in the country, and in addition, you must submit reports once a year to the regulatory authorities that closely monitor your financial condition. Another feature is that in the US they take customer complaints and claims very seriously. They will certainly influence the decision of the commission to renew the license; you can have no doubt about it. However, this entire rigor has a downside. Having a US broker license in your hands, you get access to a huge market, and trust from clients. Therefore, the game is worth the candle. Now we will take a closer look at what it takes to be issued a Forex broker license in this category of countries.

Forex license in the USA

In the USA, to enter the forex market, a local license is required, the so-called Retail Foreign Exchange Dealer (RFED). Even when you fulfill all the requirements for obtaining a document, a thorough check of the regulatory authorities awaits you. You must confirm that all owners and directors have no criminal record. There are also requirements for a minimum equity capital of $ 20 million. However, this is the minimum level, below which one cannot go. It is recommended that a forex broker has at least $ 30 million. Moreover, if your capital falls below this threshold, you will need to notify the regulatory authorities. Another requirement: the reporting of a forex broker is transparent, and static data is freely available.

Finally, in terms of timeline, the entire process takes one to two years.

What’s more, the NFA can conduct an unscheduled audit without warning, so you should be prepared for that too. Naturally, if you organize your work correctly and conduct business honestly and transparently, this will not be a problem.

As you can imagine, such measures are needed to maximize customer protection. It should be noted that the USA has the best legal framework in the world that regulates activities in the forex market, so clients can feel safe here. With such a license in hand, the greatest opportunities open up before you.

Forex license in Switzerland

Swiss banks are considered the best in the world. The same goes for the broker’s license. Here the market is controlled by FINMA. Its specialists control the observance of financial norms, including in Forex, suppressing all attempts at fraud by market participants.

According to current laws, persons holding a Forex license bear the same responsibility as banking institutions. As you understand, in Switzerland, the requirements for banks are very strict, but you can count on the safety and protection of your interests. Local legislation in relation to the Forex market, as well as the American one, is very well developed. As in the States, Forex licensees regularly submit reports and are audited. This is necessary in order to prevent unexpected bankruptcy and loss of clients’ money. If the situation gets out of control, the regulator will identify the problem at an early stage. Switzerland is the best jurisdiction in Europe for a forex broker, but not because of the country’s reputation of banks, but because of the good guarantees that clients receive.

There are very strict rules regarding forex brokers, and quite high service prices, but this is an inevitable price to pay for reliability and high reputation. If the client is confident in the broker, he will entrust him with much more funds. The equity requirements here are not as serious as in the USA, but they are also quite significant – the amount of equity capital must be at least CHF 10 million (approximately $ 11.3 million).

Forex license in type “B” countries

Category B countries have much less stringent rules for forex licensees. There are less strict requirements for equity capital, reporting is less often required, and the regulator does not closely monitor the actions of market participants. The United Kingdom and Australia are classic examples of such countries. In the United Kingdom, the forex market is controlled by the FCA (Financial Conduct Authority) and in Australia – by the Australian Securities and Investments Commission (ASIC). If we talk about capital requirements, then they are measured not in tens of millions, as in countries of category “A”, but in hundreds of thousands and the cost of the license itself will be about $ 30 thousand and will take about a year.

Forex license in the UK

The requirements for forex brokers here are not as strict as in the USA and Switzerland, but they are still equated to bookmakers, which means that their activities are regulated by regulatory authorities. To obtain a forex broker license, you must register a legal entity here, most often it is a limited liability company – LTD.

In the UK, there are strict rules regarding brokerage staff. Thus, the shareholders and the director in no case should have a criminal record, and the manager must confirm his qualifications in exchange issues and the presence of at least minimal experience in this segment. In addition, the managing director must be located in the country. Management from abroad is not allowed here. If the regulator at some point determines that the brokerage company is not controlled from the UK, the license will almost certainly be revoked.

There are two options for equity capital requirements (depending on the chosen model of work):

  1. 100,000 – 125,000 GBP, if the broker company works with attracting clients’ money. An example of such a model would be an STP broker.
  2. 730,000 – 1,000,000 GBP if the company uses the market-maker model, or DDB (Dealing Desk Broker). Under this scheme, the brokerage company carries out operations from its own accounts and acts independently. This includes trading currencies, or securities and assets.

Yes, the UK does not have the same strict rules regarding forex brokers as the US, but it is still a respectable jurisdiction. Cooperating with a broker who has a license from this country, the client can be sure that his/her assets are well protected, and that his/her complaints and claims will not be ignored, and in conflict situations, he/she has certain guarantees. Of course, by the amount of equity capital, you can understand what guarantees clients receive in these countries.

Forex license in Australia

Another example of a country in this category is Australia. There are also a number of requirements for the licensee:

  • obligatory presence of an office in the country;
  • shareholders and directors were not seen in fraud;
  • confirmation of sufficient equity capital;
  • confirmation of the existence of valid anti-money laundering schemes;
  • sufficient qualifications of managers.
  • at least two directors must be Australian.
  • a dedicated person should be appointed to monitor compliance with Australian forex broker legislation.

The regulator (ASIC) monitors that all the prescribed norms and requirements are met, for this they study the reports that the brokerage company submits and from time to time conduct an audit, or request certain documents.

For small companies (here small ones are those that receive less than $ 5,000,000 in income, and at the same time the number of employees is less than twenty) there is a requirement for annual reporting. At the end of the year, a report of the established form must be submitted within one month, and within three months after completion year – to submit the opinion of an independent auditor.

Medium and large companies (over $ 5 million in revenue and / or more than 20 employees) also submit a report and auditor’s opinion within two and four months after the end of the year (respectively).

In the event that a company violates the rules applicable to a forex broker, or does not submit a report on time, or submits false data, it receives penalties, and in some cases its license may be revoked.

Forex license holders in Australia have one peculiarity – they cannot cooperate with US citizens.

Type “C” countries

The regulation in these countries is not as serious as in countries of category A and B, and they formally offer protection of the interests of clients, but in practice, this opportunity is not always taken advantage of. In addition, the threshold for the amount of contributed capital and reporting is significantly lower here. Typical representatives of this group of jurisdictions are Malta, New Zealand, or Cyprus.

Therefore, for example, the volume of the minimum authorized capital for a license holder here is tens of thousands of dollars, and the entire registration procedure takes about six months.

These are certainly not offshore jurisdictions where you have almost no guarantees, but you should understand that the level of protection of rights and security here would be significantly lower than in countries of higher categories.

Forex license in Cyprus

Many people continue to associate this island with an offshore in Europe, but in recent years, the situation has noticeably changed towards tightening the rules and bringing them in line with EU standards. So now, Cyprus has gained access to the EU market, having fulfilled all the requirements for the control of financial flows and at the same time leaving low rates and cost of services. Thus, a Cyprus forex broker license is a pleasant compromise between low cost and access to promising markets, because having such a document, a forex broker can legally borrow funds from EU clients. The state supervisory authority Cyprus Securities and Exchange Commission (CySEC), carries out market control and issuance in Cyprus.

Although Cyprus is a Category C country, its equity requirements are comparable to Britain (Category B):

  • 125,000 EUR if the company works with funds attracted from clients (STP broker);
  • 730,000 EUR, if the company operates on the market on its own behalf and independently conducts its operations there (currency exchange, asset trading, etc.) – “market making”.

Thus, as you can see, the financial guarantees are quite impressive.

In addition, as in other countries of the above categories, in Cyprus the company must have a local office. In addition, at least three directors will be local citizens, and managers must prove their professional level in this segment. All procedures for issuing permits for a broker take about six months.

Despite the fact that the registration procedure is simplified here, and the reporting requirements are significantly lower in comparison with countries of higher categories, the Cypriot license has a certain authority in the forex market.

Forex license in New Zealand

In this country, the Financial Service Provider Register (FSP) regulates the Forex market. As for the minimum contributed capital, it is lower here than in Cyprus, and the registration procedure will take about five months. We should note that the regulator does not constantly monitor the performance of brokers, but considers complaints and claims from clients, so you can be sure that your interests are protected. In order to resolve any disputes effectively, a company with the appropriate license must register in a special system for resolving disputes. When registering, just like in Cyprus, it will be necessary to confirm that the managers and owners have no criminal record, as well as the appropriate qualifications of the managers.

Forex license in Malta

Malta is a good alternative for those wishing to enter the European markets, since this country is also part of the EU and the requirements there are quite loyal. Malta is not a classic offshore, but tax rates here are noticeably lower than the EU average, and the country has a good reputation. Malta has recently provided this type of license, so it can be considered a newcomer to the market.

The local regulator requires that an applicant applying for a forex license comply with the following rules:

  • regional office in Malta;
  • directors and management personnel must attest to their professional level;
  • the company regularly (once a month) provides reports on the results of its activities, as well as an auditor’s opinion every year.

On average, all licensing procedures will take you about six months. Malta offers two types of licenses for forex brokers:

  • STP broker. Such a document allows you to attract clients’ money for work and provide them with financial services. At the same time, the requirements for the authorized capital when issuing permits – 125,000 EUR;
  • “market making”. This document allows you to conduct independent actions in the market, as well as work with clients’ money. As for the capital requirements, they amount to 730,000 EUR.

The money is deposited prior to filing registration documents into a bank account with a Maltese bank.

Type “D” countries – offshore

This category of countries includes those that are commonly called offshore. These are mostly small island states such as the BVI, the Cayman Islands, Vanuatu, or Belize. The main advantage of countries in category “D” is the low threshold for entry into the Forex market – there are relatively low rates, simple requirements, do not force reporting, besides, in these countries there are either very meager income taxes, or they are generally zero. There is also a downside to the coin. In such countries, mechanisms for protecting the rights of clients of brokerage companies are much less developed, and even with a good legislative framework, working with offshore companies is always associated with risks, sometimes-unexpected problems arise, for example, the bank refuses to conduct an operation with the company, registered in Belize (this sometimes happens).

Forex license in Belize

Belize is one of the three most popular offshore jurisdictions for obtaining a forex license. Here, the mechanism for obtaining permits for a broker is very simple and straightforward, it compares favorably even against the background of other similar countries, for example, neighboring Panama. However, when it comes to prices, it is not that cheap here. Therefore, for example, the required capital for brokerage companies is quite impressive – $ 0.5 million and the cost of the license itself for a year is $ 25,000. The regulator International Financial Services Commission (IFSC) controls the local financial market. They are responsible for issuing licenses to brokers. Despite the fact that the country belongs to category “D”, there are rather strict rules, which are followed by IFSC. In addition, there is a set of standard requirements that must be met for registration:

  • directors and managers must prove their competence in working in the forex market;
  • the company must have a regional office and hire local specialists (the rule was introduced in 2019);
  • deposit a minimum amount of personal capital (at least $ 0.5 million) to an account with a local bank and pay $ 25,000 for the license.

Although Belize is considered a “D” country, it is quite popular with those looking for a FOREX broker license.

Forex license for BVI

Another popular place to get a forex broker license is in the British Virgin Islands. This is a small group of islands, overseas territory of Great Britain. The regulator Financial Service Commission (FSC) controls the local market.

There is a list of standard rules for anyone who wants to get a Forex broker license:

  • the minimum number of directors is 2, and one of them must be a local resident;
  • mandatory presence of a regional office in the BVI;
  • depositing the minimum equity capital in the amount of USD 250,000.

The term for obtaining the document is approximately three months.

If a broker company violates the established rules, submits inaccurate (incomplete or false) information to the regulator, is seen in money laundering, or receives complaints from customers, FSC may revoke the license.

Forex license in the Cayman Islands

The Cayman Islands, like the BVI, are the overseas territories of Great Britain, a group of small islands in the Caribbean. Here, the Chartered Institute of Management Accountants (CIMA) is responsible for regulating the forex market. The Cayman Islands is a very popular jurisdiction among those wishing to obtain a forex license for a number of reasons. Firstly, it will be easier, faster and cheaper to obtain a license here than in most other countries of the world.

Despite its remoteness, the Cayman Islands boast an advanced financial system. Having received a license here, good opportunities open up for its owner. Here are the basic requirements for obtaining a forex license in the Cayman Islands:

  • before submitting an application, you must deposit an amount of 100,000 USD to your local bank account;
  • company executives are obliged to confirm their competence in doing business in the forex market;
  • the broker company must develop and present an effective system to combat money laundering;
  • you also need to provide a business plan and financial forecast for the next few years.

Thanks to the joint efforts of the world’s largest economies, as part of the implementation of a global system for combating tax evasion, most offshore jurisdictions have introduced a rule according to which foreign business must create an economic presence in the country of registration, and this rule was also introduced in the Cayman Islands. That is, if a company is registered in the Cayman Islands, its office must be located here, and local employees must work there.

Forex license in Vanuatu

Vanuatu is a small group of islands east of Australia. Vanuatu is very popular among forex brokers due to the fact that there is a very low minimum equity capital – only 50,000 USD, moreover, 48,000 of this amount can be withdrawn immediately after obtaining a license, that is, in fact, you only need to deposit 2 thousand dollars. At the same time, the period for obtaining documents is also very short – only 1-2 months. In addition, in Vanuatu there are no special requirements for citizenship and qualifications of directors of brokerage companies (only at the level of wishes). Another notable advantage is the complete absence of reporting requirements, but at the same time, accounting records must be kept as expected, since inspections are still sometimes carried out.

That is, now Vanuatu looks very attractive in terms of obtaining a Forex license.

Forex license in Labuan

Labuan is a small island located north of Brunei, it is part of the Federation of Malaysia, and has some autonomy. Labuan Financial Service Authority controls the local market and issues licenses to brokers. Labuan is not as cheap and affordable as other offshore jurisdictions, but it has an undeniable advantage – it provides direct access to the large and perceptive markets of Asian countries, primarily Malaysia.

Just like in other countries, the company’s office must be located here, and at least one local employee (at least) must work in it. Regarding the requirements for directors, the company must have at least two directors with appropriate qualifications in finance.

The minimum equity capital required by those wishing to obtain a license is 237,000 EUR, and the entire registration process will take about four months. In Labuan, there are quite strict requirements for reporting and audit – at least once a year the company undergoes an audit and submits reports on the results of its work.

How to choose a jurisdiction for getting a forex license?

Of course, your choice of jurisdiction for obtaining a forex broker license is not limited to the countries listed above, they are presented as typical representatives of their categories, and you can register practically in any country in the world. However, in order to choose the right place of registration, you have to answer a number of questions:

  1. What region are you targeting (mainly)?
  2. How quickly do you need a document?
  3. What banking institution are you going to open an account with?
  4. How much money do you have to submit as home equity?

Ideally, the best jurisdiction should satisfy your needs on all counts, but if you cannot find one, you can compromise on those that are less important to you.

Therefore, for example, if you are planning to work with the EU market, the best places to register are Cyprus, Malta, and the Czech Republic. If your goal is Southeast Asia, it is better to choose Labuan, and Belize is optimal for those who want to work with North America.

In offshore jurisdictions, you can get the desired document in a month or two, while in the USA it can take 2 years.

It is better to work with banks in stable and reliable jurisdictions such as Switzerland, the United Kingdom or the UAE, but there may be problems with banks in offshore jurisdictions. Nevertheless, it is best to open an account in the region where you want to work.

Finally, if we are talking about the volume of capital, then in type “D” countries, it is several times (or even several tens of times) lower than in type “A” countries.

Your task is to find the perfect balance between these parameters. If you have any difficulties with this, please contact our specialists and they will help you.

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