Exclusive: Mastercard Letter on Unregulated Brokers Clarified by EU Bank

Earlier this week we broke the news that Mastercard is taking action to classify certain transactions as high risk and therefore provide ample time for chargebacks on the part of depositors. Today we can confirm what we suspected a couple of days ago: the effort from the card issuer is part of a well-coordinated campaign that includes several regulators and government agencies.

Thus, the likelihood that VISA will follow up with a warning of its own against CFD, forex, crypto, binary options brokers and ICOs is a virtual certainty.

In a letter from a partner bank to a payment processor that is clarifying the stance of the institution on Mastercard’s statement, the new and restricted rules for the so-called “high-risk merchants” are elaborated upon.

Contents of the Letter

The letter from the bank explains that the effort has been encouraged by authorities after multiple complaints against merchants that are involved in CFDs, forex, crypto and binary options brokerage services, as well as ICO issuers.

The card schemes (read Visa, MasterCard, UnionPay, RuPay, etc.) were asked to look into the questionable business practices of certain brokers/dealers engaged in the activities mentioned above. The companies have also been asked to ensure that laws are observed and enforced regarding illegal activity involving merchant noncompliance with local jurisdiction regulations.

High-Risk Merchants Requirements by July 1st

The high-risk MCC code 6211 will be assigned to every transaction executed with brokers and ICO issuers. The companies, classified as high-risk merchants will be required to provide a copy of their license, assuming they have one. The authorization document must be issued within Europe. This rule also applies to merchants trading Cryptocurrencies and ICOs.

For those merchants whose business is solely selling or buying cryptocurrencies and where there is no trading involved, the merchant must provide a legal opinion from the authorities of the merchant country, stating the legal status of the business model.

Copies of the registration of the merchant, where required under applicable law, with a licensed exchange or licensed Trading Platform and a legal reference to any law applicable to the merchant that permits high-risk trading activity are all mandatory by the 1st of July.

“If the merchant is unable to obtain an updated license, we will cease processing applicable high-risk securities transactions from such merchant until provided with an updated license,” the letter states.

Legal Opinions Country by Country

As highlighted in our previous article on the matter, brokers will need to provide a legal opinion from each country in which they are operating to be able to process transactions or offer their services. The legal opinion must be drafted by a reputable law firm located in the specific country and be addressed directly to the relevant financial institution.

Within the legal opinion, all of the relevant trading laws and all other relevant laws applicable to the merchant and the cardholder must be identified. The activity of the merchants and cardholders must comply at all time with all of the laws that have been mentioned in the letter.

When it comes to the EU, by the 1st of July 2018, all merchants must provide a valid European Licence. If no license is at hand, but the company is in the process of obtaining it, the merchant must be able to provide the bank with a signed document from the relevant authorities showing the status of the application to obtain the license. This must be received by not later than 15 September 2018.

The merchant also has to provide a list of all countries where it is operating and all of the requested documentation and legal opinions as described above.

Thus, the likelihood that VISA will follow up with a warning of its own against CFD, forex, crypto, binary options brokers and ICOs is a virtual certainty.

Contents of the Letter

High-Risk Merchants Requirements by July 1st

Legal Opinions Country by Country

The merchant also has to provide a list of all countries where it is operating and all of the requested documentation and legal opinions as described above.