12 August, 2019

How to get a Forex License?

If you’re looking to open a Forex brokerage, you have to understand where and how you can get a Forex license. The process of getting a Forex licence differs greatly from country to country, so it is important to choose the right jurisdiction. As Forex is a global business, you may choose to start it in a location different from your origin, instead of registering in your home country. However, not all states would be a good fit. This article will explain you how to get a Forex License in the US, Japan, Australia, the UK, as well as in other countries that are popular among Forex brokers, such as Cyprus, Malta, BVI, Seychelles.

How to get a Forex licence in the US

To get a Forex licence in the US a business must register with an NFA (National Futures Association) and the CFTC (Commodity Futures Trading Commission). If a broker is planning to offer US stocks, then it has to be also registered with FINRA (Financial Industry Regulatory Authority), a non-profit organisation authorised by the US Senate. All 3 agencies are overseen by the SEC, the Securities and Exchange Commission, and all the US-registered brokers must comply with SEC regulations.

Getting a Forex licence in the US means registering with NFA as a Futures Commission merchant. A futures commission merchant (FCM) is an entity that solicits or accepts orders to buy or sell futures contracts, options on futures, retail off-exchange forex contracts or swaps, and accepts money or other assets from customers to support such orders. To register as an FCM and become an NFA Member a company must complete these 6 steps:

  1. Designate a Security Manager in order to obtain secure access to NFA’s Online Registration System (ORS)
  2. Complete online application form
  3. Satisfy compliance requirements for FCM applicants
  4. Complete online Annual Questionnaire
  5. Pay a non-refundable application fee of $500
  6. Pay non-refundable FCM membership dues

FCM membership dues for a retail foreign exchange dealer are $125 000 for an initial setup plus $125 000 to $1 000 000 annual fee, which is calculated based on your annual gross revenue. The commission is much lower for an individual Introducing Broker and equals $750 initial setup fee and $750 annual dues. An Introducing Broker firm must pay $2500 respectfully.

According to NFA, any Forex broker that accepts US-clients must register with the Association. That’s why many brokers prefer to only offer their services to people from outside the US to avoid the complex and expensive procedure.

How to get a Forex licence in Japan

To obtain a Forex licence in Japan a broker need to follow guidance from the Financial Services Agency – FCA. This is the legal entity that sets industry standards for all financial companies and institutions in the country. To get a licence as a Forex broker the company needs to fill the application and bring it to the agency along with the Articles of Association and Company Memorandum. On top of that you will need to present a business plan and documents that show the internal and external operations of the company in order to get a Forex licence in Japan. Japan is well known for strict capital and compliance requirements. If you want to obtain a Forex licence from Japan, please refer to the FSA website for further details.

How to get a Forex licence in the UK

All Forex brokers in the UK are regulated by FCA, the Financial Conduct Authority. Anyone planning to open a UK-brokerage must be authorised by this organisation. FCA requests that a company takes the following 7 steps before applying for an authorisation:

  1. Match its financial services to their ‘regulated activities’ and check you meet the threshold conditions for authorisation.
  2. Define the systems and controls supporting your regulated activities and check they meet their ‘threshold conditions’ (you should test and launch these before the FCA decides on your application).
  3. Check your people have the qualifications they require (for example, financial advisers should have a Level 4 Diploma in Financial Planning).
  4. Define who needs ‘approved person’ status from the FCA in your application.
  5. Prepare a business plan.
  6. Complete the IT self-assessment questionnaire, as required.
  7. Refer to the application form guidance.

The business plan shall include a detailed description of services, target market, expansion strategy, etc. The website provides some additional information of writing a business plan and filling the questionnaire.

How to get a forex licence in Australia

The main regulatory body for Forex brokers in Australia is ASIC, the Australian Securities and Investment Commission.The process of licensing for financial service companies is described in The Corporations Act 2001. Getting a forex licence in Australia means acquiring an AFS licence, where AFS stand for Australian Financial Services. An application can be submitted online, but the process of reviewing it may take up to 12 months. Along with the application a company must submit additional documents, including business description and ‘People Proofs’ for each responsible manager, and pay the application fee. Required ‘People Proofs’ are a set of the following 5 documents: Statement of personal information, copies of qualification certificates, copy of a bankruptcy check, copy of a national history check, copies of two business references.

How to get a Forex Licence on Cyprus

Cyprus is a popular jurisdiction for opening a Forex brokerage in Europe, because Cyprus is known for its loyal laws and relatively simple application process. A brokerage authorised by CySEC, Cyprus Securities and Exchange Commission can legally operate in all 27 European Union countries plus Iceland, Liechtenstein and Norway. Another argument towards choosing Cyprus is low income tax. In order to get a forex licence in Cyprus, a company must have an office in the country. Along with the application you will be asked to pay a registration fee, and the membership fee to the Association of Cyprus International Investment Firms. List of additional documents includes business plan, financial plan for 3 years, corporate bank statement, criminal record checks for each employee, anti-fraud and anti-money-laundering policy, etc.

How to get a Forex Licence on Malta

Malta is a newly established financial center, gathering a lot of cryptocurrency, Forex and other financial businesses on the island. Malta offer 3 different levels of licences. An Introducing broker can register un Category 2 licence (grants the rights to deal with clients fund, but not to operate own trading facility), while a full brokerage will need to obtain Category 3 licence (grants the right to hold and control clients money and provide investment services). The application process starts with submitting an enquiry to MFSA, Malta Financial Service Authority. Application documentation supporting the business model will generally include the business plan, governance arrangements, financial projections as well as risk management policies, investment policies and outsourcing arrangements as applicable depending on the authorisation applied for (source: https://www.mfsa.com.mt/firms/new-authorisation/our-authorisation-process/).

How to get a BVI Forex licence

Some companies prefer to register their Forex brokerage offshore, in jurisdictions such as British Virgin Islands. Key benefits of the BVI registration are privacy of company shareholders – the government doesn’t publicly disclose this information – and the ability to operate the company from anywhere in the world. Under BVI law shareholders are allowed to have remote meetings and don’t have to be physically present on the island. The process of getting a forex licence is handled by the British Virgin Island Financial Services Commission. Although it is described on the website, the organisation advises anyone looking to obtain a BVI Forex licence to attend preliminary meeting with its members before gathering the documents.

How to get a Seychelles Forex licence

Seychelles are another popular offshore jurisdiction for obtaining a Forex licence. An organisation responsible for authorising Forex brokers and dealers here is called FSA Seychelles, where the abbreviation stands for the Financial Services Authority. THe FSA can grant you a Securities Dealer Services licence. The application process takes on average 3 months, which is a lot less than in many other jurisdictions. Seychelles have very low capital requirements compared to other countries. Another huge advantage is that a brokerage can be opened through trusted 3rd parties without even visiting the island. FSA recommends international businesses to register with the help of their authorised service provider.

As you can see, there is no single right answer to the question “Which country is the best to get a Forex Licence in?”. Each of the jurisdictions mentioned in this article has its own advantages and disadvantages. If you’re looking to target rich investors and have an opportunity to register in the US, this may be the smart choice (and if you are not registered in the US, you will not be able to accept American clients). Company’s registration in the US says a lot about its status and helps establish worldwide trust, but the complicated process and high capital requirements make it harder for new and small brokerages to enter. This is equally true for Japan which is also considered Tier 1 jurisdiction with high trust level from the clients.

A company struggling to comply with the US or Japanese regulation, but still want to get a highly credible Forex licence, might be interested in getting a British or Australian Forex licence. In the Forex world this countries are sometimes called Tier 2 jurisdiction: getting authorised here is slightly easier, but the licensing authority is still very reputable and recognised worldwide. For example, Australia offers a licensing process, a lot of which can be handled online. But at the same time it is very protective of its clients, the application process is slow and requires a lot of supporting documents.

If complying with tough UK laws don’t make sense for you, registering in Cyprus may be a solution. Although this licence requires main company operations to be handled in Cyprus, it allows brokers to legally operate within 30 countries (all of the EU+ 3 other states). At least until the Brexit this includes the UK, too. That is why Cyprus is home for many European brokerages. Yet, if UK is your target market, as a Cyprus-based company you will have to compete with local UK-registered brokerages and will have to find a way to convince clients you’re worth a try.Again, there are always other clients, who will be less interested in your licence and more in what your website offers. That is why for some brokerages complying with complicated and expensive legal requirements just won’t make enough sense. Getting a Seychelles forex licence is relatively easy and inexpensive, same as a BVI Forex licence. This takes a lot less effort, but as a Seychelles or BVI-based broker you may face issues working with financial institutions and business partners in other countries, plus offshore-registered forex brokerage have lower credibility in the eyes of potential customers.

Now, that you have an idea about how to get a Forex licence in different countries, it may be easier for you to make the right choice. To start with, it may be easier to partner with a large brokerage or trading service provider and register as an IB (an introducing broker). IBs have to comply with significantly lower capital requirements and can save a lot on licensing and registration fees. Introducing brokers don’t have permission to provide investment services independently, but they are allowed to collect and hold customers money. Starting out as a white label partner of a larger company helps you establish own brand without overspending at a startup stage. If you need further information regarding choosing a jurisdiction for an IB, you may contact Jivestor customer support team for assistance through a contact form on our website.