Breaking: Bahamas Becomes One of Most Expensive Places for CFD Licence

After searching through regulatory documents, Finance Magnates has learned that it is now going to be much more expensive for contracts for difference (CFD) providers that have a license within The Bahamas, as the local regulator has added a new fee category for CFD dealers.

In particular, legislation from the Securities Commission of The Bahamas was passed on the 27th of May 2020 by Parliament, amending the existing fee rules in place since January 2018.

Following this change, "persons seeking to register to deal in Contracts for Differences" will have to pay an application fee of $2,500, a registration fee of $15,000 and an annual renewal fee of $30,000, according to the Official Gazette of The Bahamas.

However, according to the amended rules, a registered CFD firm shall, in addition to paying the annual renewal fee, need to pay a quarterly activity fee of $45,000, unless the firm has been exempted or had the fee reduced by the Securities Commission.

Furthermore, a "CFD Supervisory Officer" will be subject to a $1,000 application fee, a $3,000 registration fee, and a $5,000 annual renewal fee, the document showed.

Annual cost of CFD license increases by 15 times

The new fees for CFD providers dramatically increase the annual cost of having a Bahamas license to more than $230,000 per year, which is almost 15 times more than the previous cost of around $16,500.

Speaking to Finance Magnates on the changes, Jim Manczak, Director of Bahamas Offshore Services, said: "The Securities Commission intends to make the Bahamas a premium jurisdiction. This sends a clear signal to unscrupulous CFD brokers to not even consider the Bahamas. But, the most important question is whether or not the most well established and reputable brokers will accept it."

The role of The Bahamas in FX

The Bahamas is one of the most legitimate offshore jurisdictions. However, the significant uptick in fees in The Bahamas is an interesting move from the regulator. Of course, the increase in fees is likely to drive away fraudsters, but it could also drive away legitimate brokers who are seeking an offshore jurisdiction, as they could easily go to other countries, such as Seychelles or Vanuatu.

With such high fees, there needs to be a clear benefit for brokers if they are to pay so much for a CFD license. There was already a question as to whether The Bahamas would remain an attractive destination following Leverage restrictions, this move from the regulator will likely put the country's viability further into question.

"The Bahamas is not cost-effective at all, and I do not recommend it, just like the other 'B Plan' jurisdictions (Belize Bermuda Barbados)," explained Tal Itzhak Ron, Chairman and CEO at legal firm Tal Ron, Drihem & Co. "Vanuatu costs 41,000 Euro plus capital of 48,000 Euro and has been proving as the best non-EU Regulation in the last four years for those dealing with FX/CFD."

"And Estonia, which costs 20,000 Euro plus 12,000 Euro capital, makes much more economic sense for those dealing with Crypto. Both licenses are accepted in several Australian, Singaporean, German, and Hong Kong banks, if the broker is working according to a strict compliance protocol which we prepare for the broker."

However, as pointed out by David Woliner, Head of Financial Regulation at Porat Group, even with the new fees, The Bahamas is still not the most expensive license for an offshore jurisdiction.

"Yes, it is, and yet, not the most expensive one, even in the offshore world," he stated. "The BVI still leads the way with a $1 million regulatory capital requirement, before mentioning the annual costs of maintaining the license there. Belize is also high above the Bahamas, consisting of a $500,000 capital, a $25,000 annual fee for the regulator alone, to which you add the costs of maintaining the local physical presence required by the regulator (local office and staff)."

Woliner then went on to explain that, depending on a broker's status, the cost of a Bahamas CFD license under the new pricing is still worth it.

"If you are a startup in this industry, you may not be looking at jurisdictions like the Bahamas or the BVI as your primary target for set up. You will typically prefer the likes of Vanuatu, Seychelles, and Mauritius, which are more affordable. But if you are a well-established group (or looking to become one) in this industry, you may want to distance yourself from others by choosing a jurisdiction which will raise the bar high enough to let you (and similar competitors) in and deter small inexperienced brokers, who may attract regulatory attention and bad reputation to the jurisdiction.

"To this date, and despite the high costs, some of the big names in the industry, such as Etoro and XM, continue to maintain their Belize licenses. The Bahamas hosts licenses by FXPro, IC Markets, Infinox, and XM. It was never cheap to start with - $180,000 capital for a broker, $300,000 for a market maker, not to mention highly expensive costs to maintain your local set up. The new costs certainly set a higher bar, but mostly for those brokers looking to get in. The big groups which are already there are likely to stay put, and groups of similar size will still consider jurisdiction like the Bahamas, despite its high costs."

Securities Commission introduces leverage restrictions

The regulation from the Securities Commission of The Bahamas was passed at the same time as a new set of regulations introduced by the authority, which included leverage restrictions and banning binary options.

As Finance Magnates reported, legislation was passed to allow the SC of The Bahamas to implement leverage restrictions of 200:1, as well as ban binary options trading. The regulator will also impose marketing restrictions, which will limit cold calling and other aggressive marketing tactics.

This, coupled with the new fee structure, creates a significantly more regulated environment. Until recently, although the island nation did have a broker-dealer regulatory framework, dealing CFDs was loosely defined.