When reviewing the IFX Expo Cyprus and retail forex industry trends earlier this month, a portion of the article was devoted to regulation. The post mentioned that a trend being followed by Forex Magnates was the divergence of regulatory environments stating “On one side we have the US and Japan’s of the world raising capital rates and decreasing margin usage, with the UK and Australia similarly appearing on their way to apply stricter rules. On the other hand, flexible jurisdictions like Belize and Mauritius are seeing a spike in firms registering in those countries.” As such, after about five years of an increase of forex brokers seeking regulation, we are now viewing a reverse of this trend. The result, established brokers are now opening units in more flexible regulatory regions to onboard clients of countries out of their primary regulation. In addition, new brokers whose management are comfortable with their relationships with potential customers and partners are launching with little to no licensing.
The question is which of these newer regulatory bodies are actually ‘flexible’ and provide a rubber stamp to broker activities and which are in fact delving deeper into their financials and enforcing rules.
Taking issue with the comparison of Belize and Mauritius in the above mentioned article, some readers reacted negatively to Forex Magnates with the opinion that Mauritius was no more than a ‘flexible’ regulator for offshore activity. On the subject, Forex Magnates discussed Mauritius with Mark O’Sullivan, CEO of Mauritius based Island Premier Global Markets. O’Sullivan pointed out that youtradeFX had its license suspended by the Financial Services Commission (FSC) of Mauritius last year, but still operated with their Australian regulation. He also added that the FSC is becoming a regional regulatory hub for foreign firms to target African clients. Specifically he mentioned demand from Dubai based firms that have become FSC licensed brokers.
Below is our longer interview discussing Mauritius and Africa.
The FSC is building a reputation of a regional African regulator, how is the regarded by end-user customers in the continent?
I think when answering this question you have to look at what the end-user ultimately is looking for. The role of the FSC is to regulate the non-banking financial sector. The Bank of Mauritius regulates the banking sector. Therefore the attraction for the end- user is not only in the reputation of the FSC but also the stability of the Mauritian banking sector, the absence of any currency controls and also the recourse to a strong legal system should the client have any need to use it. When you put all these together it’s an attractive package for both investors and end users.
What is the FSC's relationship with governments and financial bodies of other African countries?
I think the role of any regulator in any jurisdiction has to be a constant and open dialogue to with not only local but global regulators and financial bodies. This ensures not only best practice but sharing of essential AML information and a constant update of new products and services being offered.
What are the regulatory standards that the FSC requires of its licensees?
Mauritius being an international financial centre (IFC) allows companies to set up offshore entities under the FSC typically as what is known as a GBC1.This allows them to take advantage of tax treaties set up with over 38 countries. Then they would apply for a separate license to allow them to operate typically as an Investment Dealer and then there are a series of licenses depending on the activity of the client and if they are execution only or advisory. Capital requirements vary and can be up to $ 300,000 depending on the activity and license being applied for.
You have indicated that you believe Africa will be a source of growth in the financial trading industry over the next five years. Is it a region that you need to be one the ground to tap its potential, and why?
Well I can only speak for what we feel is our target market and within the industry Africa is still viewed as a difficult region to operate in for reasons ranging from compliance to movement of funds. When you talk about Africa you are talking about 53 separate countries all with their own challenges but also oppertunites. Previously we held a commodity and currency license with our local exchange Bourse Africa. From this we saw there was regional demand from retail and institutional clients for access to the global financial markets. The typical profile of a retail client being a HNW individual who may have been trading on a platform in Europe but was happy to move their funds and trade via a local broker. Therefore we took the decision to look for a solid white label partner to allow us to provide our client base with a greater range of products and will shortly go live aswe know we can build on our current client base in specific African regions. One of our main selling points apart from of course having a strong white label partner is the overall package that Mauritius can offer something I have spoke about in my introduction.
What products are seeing the greatest interest from African Clients?
A lot of what our client’s trade has some kind of historical connection. On the commodity front Gold is and will always remain a favorite. Clients know their markets and spread here is quite important and is an area we expect to continue to grow. Oil once again WTI is also heavily traded, supported by the fact a lot of corporate clients deal in the physical. On the currency front EUR/USD is widely traded ,and a point to make is whilst the industry moves to tighter spreads and greater Liquidity a lot of our clients in the past have been more interested in safety of funds and ability to withdraw should the need arise. I would still say Africa is all about the service offering rather than leverage or spreads although of course we need to remain competitive on both.
As an offshore entity, Mauritius has attracted a number of non-African based companies that have been approved for a FSC license but do very little on boarding of African clients, what is the FSC's view of such companies?
Although of course I cannot speak on behalf of the FSC, I agree we have seen in the past few years an increase in offshore companies setting up part of their operations in Mauritius with the view to on boarding African clients. It remains to be seen if they move forward and actively look towards Africa to increase their client base. But what I can say is the FSC in recent months has been quick to suspend the licenses of companies that have not fulfilled the conditions of their license and thus prevent them from operating out of Mauritius.
