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 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 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.
