Vanuatu’s FMA Seeks Improved Regulation, Physical Presence of Financial Dealers

The Financial Markets Association of Vanuatu (FMA), which is a self-regulatory body for Vanuatu financial dealers license holders, published a report with several recommendations to strengthen the island's financial dealer license (FDL) regime.

Vanuatu has become one of the popular offshore jurisdictions where forex Forex Foreign exchange or forex is the act of converting one nation’s currency into another nation’s currency (that possesses a different currency); for example, the converting of British Pounds into US Dollars, and vice versa. The exchange of currencies can be done over a physical counter, such as at a Bureau de Change, or over the internet via broker platforms, where currency speculation takes place, known as forex trading.The foreign exchange market, by its very nature, is the world’s largest tradi Foreign exchange or forex is the act of converting one nation’s currency into another nation’s currency (that possesses a different currency); for example, the converting of British Pounds into US Dollars, and vice versa. The exchange of currencies can be done over a physical counter, such as at a Bureau de Change, or over the internet via broker platforms, where currency speculation takes place, known as forex trading.The foreign exchange market, by its very nature, is the world’s largest tradi Read this Term and contracts for differences (CFDs) brokers are registering their businesses to gain a license. Based out of these offshore jurisdictions, brokers can offer higher leverage Leverage In financial trading, leverage is a loan supplied by a broker, which facilitates a trader in being able to control a relatively large amount of money with a significantly lesser initial investment. Leverage therefore allows traders to make a much greater return on investment compared to trading without any leverage. Traders seek to make a profit from movements in financial markets, such as stocks and currencies.Trading without any leverage would greatly diminish the potential rewards, so traders In financial trading, leverage is a loan supplied by a broker, which facilitates a trader in being able to control a relatively large amount of money with a significantly lesser initial investment. Leverage therefore allows traders to make a much greater return on investment compared to trading without any leverage. Traders seek to make a profit from movements in financial markets, such as stocks and currencies.Trading without any leverage would greatly diminish the potential rewards, so traders Read this Term to retail clients.

However, the reputation of licenses from these offshore jurisdictions is a bit murky.

Strengthening Regulations

The FMA, with the recommendations, is trying to make Vanuatu licensing program more transparent and accountable to international regulatory bodies while at the same time improving its appeal to derivatives brokers worldwide.

One of the major recommendations is to implement a stronger 'economic substance requirement'. It will require financial services companies to have a physical presence on the island, with at least one full-time local staff and some local operating expenditure.

If implemented, it will require around 145 current FDL holders to move their operations from offshore to onshore.

“These economic substance requirements would not only provide more guarantees to traders about the sustainability of and accountability of Vanuatu brokers; they would also satisfy a longstanding demand from the European Union, and prompt the removal of the country from the EU blacklists that have for many years impeded the success of its financial industry,” the FMA stated.

The self-regulatory body recommended improvements in six major areas in total. In addition, it wants to impose a minimum initial capital requirement with regular audits of these capital balances. Moreover, the island should have an investor-specific grievance handling mechanism.

Further, the FMA wants a fast-track and simplified licensing process for companies that are already regulated in other jurisdictions. It is even seeking improvements around crypto regulations and wants the government to consider relaxing the ban on cryptocurrency and virtual asset payments.

“An ideal license should strike a balance between being cheap easy and fast to obtain, while having sufficiently strict requirements to ensure credibility,” the report added.