Every experienced investor who makes money in FX money market will reaffirm significance of having permission from regulators with brokerage organization. It seems that today there are practically no beginners left who believe that a licensed broker or not is not important. There are many financial intermediaries, as well as types of regulatory authorities. Therefore, questions arise regarding Forex broker license: which mean nothing and which ones are really worth attention.
Category A countries
Type A among Forex licenses permissions is considered the most authoritative and, accordingly, it is the most difficult to obtain. It includes Switzerland and America. If we talk about Switzerland, then the work of brokerage houses is controlled by representatives of Monetary Market Supervisories. All of above have strictest rules worldwide.
If you are the owner of broker company and want to acquire a permit in the US, be prepared to invest $ 20 million, not taking into account the finances of customers and, in addition, keep strict records. Moreover, the broker’s headquarters must be located in America. Equally important are the customer reviews that they leave about firm on network.
To obtain such permission from the regulator, in addition to the above amount, you must have $30 million on your balance sheet. If the threshold drops, you need to notify representatives of regulatory authority. If your reporting is regular and comprehensible, you may be able to get regulatory approval in a year or two at the most. After obtaining a license, be prepared for a surprise check.
Some will say it’s too much. To track all manipulations in FX market and prevent illegal actions of brokerage firms, a serious approach is needed. The license from the Swiss regulator, which is equivalent to banks, makes businesspersons reliable financial partners for traders worldwide. There, getting a permit, you must possess a net worth of at least 10 mln Swiss francs.
Category B countries
UK and Australia are Type B states. Compared to the previous countries, income and reporting conditions are lower here. To acquire Forex license from one of enterprises, you must possess income of at least $100,000, excluding customer funds. The regulatory approval itself will cost the reseller between $22,000 and $50,000. It will take a maximum of one year to receive it. Despite the fact that the British regulator FCA requires less from brokers than the American one, it has no less authority in the world.
In this case, it is also mandatory to register firm in UK or Australia, depending on your situation. Most often, financial intermediaries of the LTD type have type B licenses. FCA, the regulator of the Kingdom, has serious conditions for the employees of the financial intermediary, namely the director. He/She is obliged to demonstrate to the representative of the regulatory body his/her knowledge in the fiscal sector and give documents confirming professional ranges and experience gained in Britain or Australia.
Category C countries
Type C includes: New Zealand (Financial Service Providers Register), Cyprus and Malta. From a formal point of view, these fiscal regulators are intended to protect the consumers of brokerage firms. Among their demands:
- min capital starts from $30,000 ($125,000 for STP, $730,000 for market makers);
- access to work exclusively with Europeans;
- hiring at least 3 managers with citizenship in the state of the country;
- director has min 6 months of expertise in finance direction.
Forex licensing from the type C regulator can be obtained in a maximum of six months.
With regard to FSP in New Zealand, strict monitoring of each brokerage firm is not carried out. The main thing that the regulator does is protecting the rights of clients, resolving conflicts between traders and brokers. An important fact is the connection of authorities with New Zealand Ministry of Finance. Therefore, each market participant trading with a company from this country can count on the objective nature of the decisions that are made during the consideration of conflicts.
The Maltese regulative basis is almost identical in terms of strength to the Cypriot one. Having such Forex broker license, free admission to EU zone is ensured. It is worth paying special attention to the experience of employees. If one of the representatives of the brokerage company does not have enough, the Malta regulator will order them to take special courses.
Category D countries
Representative countries where type D permits can be obtained are the Cayman or Virgin Islands, as well as Vanuatu, Belize and Labuan. If we compare the process of accreditation by regulators from these states listed above, we can see that it is many times easier and faster. Vanuatu, Belize and the Cayman Islands are very common permitting countries on FX. It’s because everything here is much simpler and clearer than, for example, in Costa Rica or Panama. The tax burden in this case is at a minimum level.
For getting a type D permit, FX broker must have capital ranging from $250,000 to $500,000. Also, the director is required to have relevant expertise. One requirement was added to open a type D permission, namely presence of real office in state of regulator. Each year, brokerage enterprise is required to pay a $25,000 fee to renew a financial activity permit.
Suspension or cancellation of Forex permission type D is possible only:
- if brokerage firm has provided false reporting data to regulative body;
- minimum requirements have been violated;
- it participated in money laundering;
- company’s way of doing activities has resulted in financial or moral harm to creditors or traders.
How to start?
- Find potential investments. In addition to the costs of getting FX license, it’ll also be mandatory to reserve part of authorized capital. That is why, before launching a forex broker, it is necessary to find capital that will be enough to cover the company’s expenses during the year.
- Choose a trading platform. Selecting a trading platform is a critical aspect when starting FX operations. Make sure that your trading space is up to date with market and provides all the necessary features to meet the needs of traders: a simple and convenient UI, as well as the availability of mobile and web versions.
- Decide on liquidity providers. Liquidity – key factor for FX brokers. Without deep liquidity, the broker will not be able to provide competitive spreads, which will negatively affect customer acquisition. In order to avoid these problems, it is necessary to find liquidity providers.
- Integrate payment solutions. In order to accept payments, as well as to carry out withdrawals by users, it is also significant to find a payment solution contractor. Choice of a reliable provider is extremely important, as the satisfaction of your customers depends on the quality of the solution used. Conduct market research and analyze the most popular vendors on the market to choose the best solution for you.
As you can see, a lot needs to be done. That is why entrepreneurs turn to the option of a ready-made FX brokerage license.