The boom of online retail forex trading and its encompassing traders from all over the world has led many regulatory authorities across the globe to tighten their grip and implement very strict sets of rules and regulations that often lead regulated brokers to their limits and are stifling their efforts for survival in the competitive landscape of online forex trading. This reality has given extra impetus and has attracted a renewed interest to the issue of offshore licensing of a forex brokerage. The present post thus aims to highlight the relevant issues and discuss what would be the best offshore jurisdictions for setting up a Forex brokerage in 2020.
The modern globalized era where the use of the internet has penetrated most human activity across the entire globe, provides a fertile backdrop which greatly facilitates the emergence of online businesses that are aiming at a global audience. The field of online forex brokerages that allows traders from all over the world to trade the foreign exchange market from the comfort of their office or home or even on the go via their smart mobile device, has greatly benefited from technological advancements and developments, and it is a field that is recording exponential growth. With a daily turnover of more than $6.6 trillion it is no wonder that forex trading attracts an ever-growing number of retail forex traders around the world, wishing to grab a piece of the pie and attempt to benefit from the remarkable opportunities and profitability prospects offered by the largest financial market in the world.
There are already thousands of online forex brokers around and there also new entrants to the market on a daily basis, lured by the field’s lucrative nature. What it also true however, is that not all brokers are equally successful and many fail to find an edge over the fierce competition, thus leading to their demise and ousting from the market. If you feel that you are ready to jump on this bandwagon and would like to get your own offshore forex brokerage, then act fast and do not miss the opportunity.
Bear in mind though that in order to maximize your chances for success you will need a reliable partner by your side, a partner that will not only help with the initial establishment of a forex brokerage, but one that will also be able to take care of the technological side of things, including the smooth running of your trading platform and provide you with excellent level of overall support come rain or shine. So, if you are thinking on embarking on the forex brokerage journey, start-business-online.com could be your guide and partner all the way up to success.
Our decades-long presence in the industry equips us with the extensive relevant experience as well as expert knowledge that render us an invaluable partner when it comes to obtaining an offshore or onshore forex brokerage license. By choosing to work with start-business-online.com, we shall assist your team with understanding the costs associated with obtaining a forex license, explain the application process and identify all required documents. We are also able to arrange for you the purchase of existing forex broker licenses that are up for sale.
One of the most important initial decisions you need to take when opening a new forex brokerage is deciding where to base it, especially since this decision is accompanied by a fear deal of paperwork and legal framework concerns and hassles. Choosing the right jurisdiction from the onset is crucial for your future success.
Many new brokers opt for established jurisdictions such as the UK or Cyprus, while many others are convinced by the lower cost and greater ease in the process and opt to establish their brokerage as an offshore corporation in several countries such as Saint Vincent and the Grenadines, Vanuatu, Cayman Islands and the Republic of Georgia.
The option of setting up an offshore forex brokerage is gaining in traction and popularity because such an arrangement has two distinct advantages:
Most of these countries where you can register your offshore brokerage are what are known as tax havens and impose tax rates that are practically at zero, with all the benefits that this may mean for your bank account. Provided that the jurisdiction is not any black or grey list by international organizations and watchdogs, such as the OECD, then you are pretty safe to set up shop there and enjoy the favourable tax regime.
The leverage offered to your clients during the trading of foreign exchange directly impacts your profitability and chances for customer attraction and overall success. By being established in any offshore venue, forex brokerages do not have a leverage restriction on their services. By being able to offer any leverage you want to your clients you have more room to manoeuvre, while not having to worry about following strict financial regulations allows you to concentrate on offering your customers the best possible user experience.
Other Benefits Of Obtaining An Offshore Forex License:
Before attempting to decide under which jurisdiction you will open your forex brokerage, answering the questions below will help you obtain a guideline to help your decision.
Once you have the answers to these questions, then you should examine the different categories of jurisdictions available, to find the best match between what they require, what you can meet and which set up would be most suited for your own case. What follows is a brief outline of the main categories of jurisdictions, starting from those with the highest reputation and stricter regulatory framework.
Jurisdictions under this level are those with the stricter watchdogs and registering under them, especially as a new entrant is virtually impossible. The USA and Japan fall into this category of jurisdictions and both their regulators, the CFTC and NFA in the case of the USA, and the FSC in the case of Japan, impose extremely high capital requirements, completely segregated client funds, very strict reporting obligations and the threat of the imposition of extremely hefty fines in case any customer complaints to the regulatory agency of any wrongdoing from the broker’s side.
The jurisdictions of the United Kingdom, where the watchdog is the FCA, and Australia, where the financial services market is overseen by ASIC, come under the level B category of jurisdictions. Countries in this category have less strict reporting and capital requirements than countries in the level A category, so it is slightly easier to register under them. However, obtaining a license in a level B jurisdiction is pricey and can cost up to 50.000 USD. Moreover, to obtain such a license your physical presence in the country is required, while client deposits have to be completely segregated, as is a hefty amount as capital and adequate liquidity.
These countries have regulators that offer a fair amount of protection for Forex brokerage clients. Level C jurisdictions include countries like Cyprus, where the regulator is CySEC, Malta, where the market is overseen by the MFSA and New Zealand, where the watchdog is the FSP. In these countries the regulatory framework is slightly more lenient than those in level B, but they still ensure adequate protection for the clients of forex brokerages. Having a local office in the jurisdiction is still required in Level C jurisdictions as well, but taxation and reporting requirements are reasonable and less demanding than in levels A and B. Moreover, licensing fees and capital requirements are still considerable but more bearable than those in the previous two categories, while the time needed to obtain a license is approximately six months. A point to keep in mind is that getting a license from a jurisdiction in the EU, makes it easier to attract customers from across the entire Union, while access to corporate bank accounts starts to become problematic in jurisdictions below this level.
Jurisdictions under this level include countries such as Vanuatu and the British Virgin Islands. In countries in this category level, there are regulations and licensing requirements present and you do end up being granted a license, so that you can show your clients and win their trust and confidence. As a general rule getting licensed in level D jurisdictions is a considerably faster process than in previous level categories. The incorporation process can be completed in a matter of days and 3 months is usually adequate for the license to be issued. Also, the fees are lower than in higher level jurisdictions and the capital requirements considerably more accessible. Finally, since the process does result in obtaining an actual license, this facilitates the opening of a corporate bank account.
The remainder of the world’s most popular Forex brokerage jurisdictions fall under this final category. The stark difference is that in these jurisdictions an actual Forex license is not required, nor is it granted. Nevis, the Seychelles and St. Vincent are included in this group. The main advantage of setting up a forex brokerage in such jurisdictions is the very high speed and the very low cost. A handful thousand dollars and less than ten days is all you need to register a new forex company in your name. The obvious down side is that no license means less confidence and trust from clients, plus very few banks would be willing to take the risk and open a corporate account to an unlicensed forex broker, in fear of possible money laundering, fraud etc that could tarnish its own reputation. Only way to offset this would be if your company engages in other types of business and not just forex then it would be possible to secure a corporate account and use that for both purposes.
What is useful to remember regarding the different levels of jurisdictions available is that a great number of brokerages do start out as unlicensed and registered in level E jurisdictions, and climb up the ladder as they go along.
Registering in countries in jurisdictions in levels A, B and C costs between five and ten times more than in levels D and E.
At least a few months, up to six, are required to obtain the actual license in levels A to D.
Levels A to C require a local office presence and payment of local taxes.
If gaining the trust of prospective clients is crucial for you then you should opt for a jurisdiction that offers you a proper license. If, however, you do not have adequate resources to do or if speed of access to the market is more important, then you could start off from level E and obtain a license higher up as soon as conditions allow you to do so. Do keep in mind that the only way to gain greater credibility is to move up the jurisdictions ladder, which besides added credibility will also improve your overall image and reputation as a broker.
Besides the jurisdictions described above, there is another alternative option in the shape of a scheme that combines the registration of two different companies, one at an offshore location and one at the European country. After their separate creation, the two companies then conclude an agreement between them, through which the company in the European zone acts as a payment agent of the company in the offshore location. This registration method allows the offshore located broker to work with international payment systems and electronic banks, such as Paysera or E-payments.
The registration price of the combination option is relevantly low and this another reason this scheme is a popular option, while the time required to get both companies registered is fairly fast, usually not exceeding one month. On the downside, this scheme has come under attack and close scrutiny by watchdogs, especially European ones, who accused the offshore located, unregulated broker of using the EU located counterparty for promotion purposes, while deliberately misleading customers.
In a nutshell, offshore registration has both its pros and cons. Brokers are particularly attracted to unregulated jurisdictions because of their very favourable tax system that allows them to drastically reduce their operating expenses and leaving with more available funds to spend on other purposes, such as on marketing.
In short, your preferred country of jurisdiction should be chosen based on how much money you can devote as start-up capital, what type of brokerage you wish to open and which valid reasons you may have for going offshore.
The most popular offshore jurisdictions for forex brokerage registration currently are as follows:
But simply picking one from the list will not do the trick! What is needed is a thorough and in-depth analysis each jurisdiction’s characteristics and how they fit with what you have, what you need, what you want and what you are aiming at. Whatever you do, remember to never base your decision solely on which jurisdiction is cheaper to get to, as cheap is almost never the best solution, in forex as much as everywhere else.
Another important factor to consider before you decide where you will register your offshore forex brokerage are the capital requirements that you will need to meet. Below is an indicative list, to give you a foretaste of what to expect:
The capital requirement for a new Forex brokerage in Belize is USD $500,000
The capital requirement for a new Forex brokerage in the Cayman Islands is USD $100,00.
The capital requirement for a new Forex brokerage in Mauritius is USD $28,000
Meanwhile, the start up capital requirement for registering in Cyprus, under a CySEC license, is EUR 730,000, while all client funds must be kept in segregated accounts.
With so many different regulatory jurisdictions to choose from, it can be challenging as well as painstaking for both startup brokers and established businesses to determine which is the best forex license to obtain and apply for in each case. This is where Start-business-online.com comes in, to help all brokers or prospective brokers take the best decision from a financial and business standpoint. Our resident experts can offer specialized advice on licensing issues, and they are always just a phonecall or email away.
In addition to forex broker license solutions, we also specialize in the entire spectrum of corporate services for forex brokers, including banking matters, access to payment service providers (PSPs) and payment gateways.
Finally, if you have a forex license for sale, or wish to speak to us about acquiring a forex business for sale, don’t hesitate to contact us to explore all available options.
Start-business-online.com , through our expert resident team, has got you covered when it comes to the registration of your new forex brokerage whether offshore or onshore. In fact, we can take care of all the paperwork required for opening your forex brokerage in the jurisdiction of your choice, thus facilitating the fast tracking of your brokerage setup. Take advantage of our top-notch customer support put at your disposal, and let us handle all issues on your behalf, from company formation, to your technology needs, trading platforms, liquidity providers and payment facilitators, while you focus on getting clients in and keeping them happy.
More specifically, our services include:
We have a long and successful track record in assisting brokers with their regulatory and broker licensing needs, and can thus become your trusted partner with regards to all aspects of broker formation and operation.
We can assist you in obtaining a specific license or authorization from your preferred jurisdiction, so that you can legitimately operate as a brokerage firm in the foreign exchange industry.
We also offer advice and guidance to brokerage firms that are in the process of deciding where it is best to apply for a license, helping them reach the most suitable decision that will pave their way towards forex brokerage success.
Start-business-online.com could also help with writing a business plan, preparing financial projections, compliance procedures and management of the full application process from start to finish.
Start-business-online.com is here to assist you with your brokerage business, whether it is a brand new entry to the market or an established brand seeking to streamline its operations. Our team of experts can efficiently provide a breakdown of the costs for obtaining a forex license, a thorough analysis of the steps required to apply for an offshore/onshore license as well as review all associated fees. In addition, we could also assist you with the purchase of existing forex broker licenses that are for sale. So, whatever your forex brokerage related need, don’t hesitate to contact us today!
Our company specialises in the sphere of B2B as a liquidity and technology provider of solutions for the forex and crypto industry.