In a constantly changing world for the industry, one may find a good sign in the fact that a once sought after jurisdiction appears to be back in business. I refer to Bulgaria.
Indeed, recently one of our partners in Bulgaria successfully assisted an international client in obtaining an FX STP broker license from the Bulgarian financial regulator, the Financial Services Commission (FSC).
This successful application comes after several years of de facto license freeze, during which the Bulgarian FSC did not grant any license to FX brokers, despite an abundance of applications which were submitted for its review.
As well known to the industry, Bulgaria is an attractive jurisdiction for many reasons. One of these reasons is Bulgaria's attractive tax regime, with the corporate income tax rate set at 10%, one of lowest amongst EU member countries.
Another reason is the fact that almost any service and associated costs in Bulgaria are relatively cheap. This is a huge factor given the fact that you will need to set up a substantive local physical presence, including local office and a minimum of six-seven employees.
David Woliner
Bulgaria is not new to the FX industry. For that reason, one will be able to find suitable and talented local workforce to handle all the required roles and functions. Finally, Bulgaria is a jurisdiction with relatively not to many scandals involving the industry were recorded.
What are the Requirements?
Let us dive deeper into the process and requirements.
You will need two directors to be based in Bulgaria, and at least one of them must speak Bulgarian to act as a point of contact with the FSC and other local authorities and effectively manage local employees (who most likely will be Bulgarian). The other director is not required to speak Bulgarian or to be a Bulgarian national or resident but must be an EU national and resident. Given that this is hard to find, our advice is to source for two Bulgarian directors.
Directors must have at least a Bachelor or Master degree, preferably in the area of Law, Finance, or Economics, and three years of professional experience in non-banking financial sector enterprises or in banks provided that his responsibilities were connected with the main business of the applicant.
With regards to the shareholder: Any qualified shareholder (owning ten percent or more of the capital of the company), the requirements are high according to EU Guidance. These requirements are:
Education – a Bachelor or Master degree preferably in the area of Law, Finance or Economics.
Professional competence – this covers competence in management (the "management competence") and competence in the area of the financial activities carried out by the financial services firm (the "technical competence"). To meet the Management competence requirement, a shareholder must have at least one year on a management position in any type of company (not obligatory to be in the financial sector).
Technical competence – a shareholder must have previous experience in operating and managing financial institutions (preferably in the EU but not necessarily) as a controlling shareholder or as a person who effectively directs the business of a financial firm.
Source of funds – the regulator will request declarations for origin of sources along with proofs for the statements in the declarations and proofs for the current financial condition of the shareholders such as current bank statements, documents of ownership of property, tax returns for the last five years, loans, receivables, owned securities, amongst others.
Bottom Line
Bulgarian FSC is known for being strict and for its heavy scrutiny of applications. The above covers the basic requirements for directors and shareholders. A highly detailed business plan will have to be drafted along with financial projections. Same goes for all required and applicable policies and manuals. The local office will need to be located, and local employees will need to be hired.
David Woliner is the Head of Financial Regulation at the Porat & Co. Law Firm
