A financial activity is an activity in which the funds of a person are managed by a third party.
Companies that are used for personal gain, such as personal investment companies, funds, or companies set up to manage their wealth otherwise, are not technically financial services companies, as these funds are solely owned by the owners.
However, this does not mean that you can create a company and transfer ownership to anyone. There is control of the respective jurisdictions as to how property can be transferred, what requirements must be met when registering and maintaining a company.
For a general understanding, it should be assumed that financial services refer to services related to money in one form or another provided to third parties.CYT5A
Various activities, different regulation
While many recognize that the activity they intend to conduct requires a license, it creates confusion when potential financial service providers fail to understand that different activities have different requirements.
- Investment services;
- Foreign currency exchange services;
- Deposit services;
- Credit services;
- Money transfer services;
- Prepaid card services;
- And so on and so forth.
Each type of the above types of services requires a separate license.
Insurance is also a type of financial services that is regulated by a separate law – as opposed to just a chapter in the financial services law.
Investment services
These are services in which clients deposit funds into your company account, which you then invest on behalf of the client. The profit is divided between you and the client on a contractual basis.
The license can also be investment and consulting.
This activity requires a high degree of skill. But a license is not always required. For example, if the number or number of clients is very low.
Licensing requirements vary from jurisdiction to jurisdiction, but it is generally fairly easy to obtain a license if you have the appropriate skills and can contribute at least $ 100,000 in registered capital. However, there are significantly fewer options.
Foreign currency exchange license
It is a type of investment where you invest in different currencies or currency pairs on behalf of clients.
This type of license most often refers to buying and selling currencies. Clients who deposit USD in order to buy GBP at the suggested GBP rate, which is determined based on how much GBP other clients want to sell.
To profit from these activities, you need good start-up capital and good banking connections.
Any license usually requires a significant amount of work and time.
License to accept deposits
This is probably the easiest service to offer. There are a variety of legal entities suitable for deposits from various bank-like entities such as:
- Sparkasse / sparkassa,
- New Zealand FSP,
- Panama,
- Costa Rica,
- or a specially licensed IBC.
A license is not always required. But again a license may become necessary. On the one hand, to satisfy banking partners.
License to issue loans
Banks are often referred to as lending institutions because this is what distinguishes them from mere deposit structures.
Issuing loans to individuals most often requires a license, but for small operations it may not always be necessary. Business lending can be carried out under the guise of investments and, perhaps, also not always require a license.
Money transfer license
In order to compete with major remittance providers like Western Union, Xoom, RIA, Transferwise, Transfast, you must license or become their agent.
Unlicensed money transfer services are severely prosecuted.
Prepaid cards
If you want to offer prepaid card services, you have three options:
- Partner with a licensed card issuer;
- Partnership with a partner of a licensed issuer;
- Become a licensed issuer.
The first point does not necessarily require a financial services license, but the licensed issuer would prefer you to have some form of accreditation. However, being an experienced professional may be enough.
Many service providers have partnerships with several offshore or European banks that operate on the brink of the law.
The second point is the simplest and most often uses anonymous prepaid cards without ID and IBAN.
There are practically no requirements for activity. Such a scheme of work is most often illegal and is quickly suppressed by the relevant regulator, if the regulator is concerned about it; often the regulator turns a blind eye to this service sector at the present time or because compliance with the requirements is finally tightened by legislation.
The third point undoubtedly requires a license – often a full, unlimited banking license.
An offshore license is an opportunity and a way to satisfy the need to be licensed with tax advantages and no tax and foreign exchange regulation, as well as relaxed licensing requirements.
Reality
Times have changed. Law enforcement is getting better, interpretations are stronger, and authorities are more attentive. Countries are becoming more transparent and open by implementing joint policies BEPS, GAAR, etc.
The specialists of Eternity Law International will provide you with expert advice on obtaining a license in a suitable jurisdiction.
If you have any questions about obtaining a license in an offshore or European jurisdiction, please contact our specialists for detailed advice.