It has been three months since the deadline given to forex brokers by St. Vincent and the Grenadines' (SVG) financial watchdog elapsed. In January, the Financial Services Authority (FSA) ordered forex brokers operating in the jurisdiction to produce a certified copy of the requisite licenses issued by authorities from which their business activities are conducted, or risk being sanctioned.
Defending the action, the FSA said the new policy is its response to the rising number of fraudulent claims against forex trading firms in the country. The watchdog noted that the trend could have “potential detrimental effects” on the jurisdiction’s reputation as an international financial center.
With the deadline now well gone, Finance Magnates sought to understand how the Island country's financial watchdog is enforcing the rule and what the implementation means for the retail FX/CFDs industry in offshore jurisdictions.
‘Recent Surge in Offshore License Applications’
Speaking on the new rules, Tal Itzhak Ron, the Chairman and CEO of Tal Ron, Drihem & Co., a legal firm that focuses on the fintech and gaming industry, explained that that the new requirement simply demands that entities in SVG hold an external license when deploying an entity registered in the Carribean island country to offer trading in forex, crypto and CFDs. Responding to the new requirement, most of Drihem's well-established brokerage clients have already complied with the new rule since they already hold licenses from well-regulated markets, such as the UK, Australia and Cyprus, Ron noted.
“These brokers cannot risk tarnishing their reputation and they were the first to comply with the new requirement,” Ron told Finance Magnates. “[Our brokerage clients] applied to the SVG FSA with the other licenses in the group, thus allowing continuation for their SVG activity.”
On the contrary, some brokers are shopping for other offshore jurisdictions where they can establish their presence.
“Existing SVG brokers are also finding other alternatives. We did see a recent surge in applying for other offshore licenses e.g., of Seychelles, Mauritius, Bahamas, Vanuatu or Labuan," Ron added.
Speaking further on the new requirement, the Tal Ron, Drihem & Co. CEO explained that SVG has been historically appealing because it did not require license for offering financial services in the jurisdiction. These attracted 100s of new companies to the island country every year, he noted.
However, Ron pointed out that a particular requirement is being ignored with regards to operating in SVG.
"Establishing direct connections between brokers and affiliates is not easy but it's something we are really happy to do now after the recent change," Ron said. "But, aside from that, you would still need to add a section to the Articles of Association specifying the intent to offer said activities. Not many brokers and service providers know about this requirement."
‘A Sort of PR Exercise’?
Meanwhile, the FSA’s new requirement comes years after industry actors speculated about the regulator’s intention to implement its own set of rules to rein in bad actors tarnishing the Island country's image with unscrupulous business practices. The rules were expected to reverse the old regime that gave leeway to forex brokers to self-regulate.
Hence, questions remain as to how far the new requirement will change the face of the retail forex industry in SVG. For one, not all brokerages believe the SVG financial authority will be willing to go all out.
“It is very unlikely that very draconian measures would be implemented by the SVG regulator, largely because the regulatory framework was established by the SVG authorities to bring business to the island rather than as a method of maintaining a respected regulatory framework over a developed financial markets industry, which SVG does not have,” said Natalia Zakharova, the Head of Business Development and Operations at FXOpen.
Zakharova describes the implementation of the rule as 'a sort of PR exercise' to draw attention to the jurisdiction rather than to implement stricter operating practices among license holders.
She explained: “SVG is a region which firms look to if they wish to operate from regions of the world not synonymous with a developed financial markets ecosystem or if they wish to offer terms outside those allowed by first-tier regulatory authorities in Europe, North America, Southeast Asia or Australia.
“For this reason, it appears as though this is a check-box exercise aimed at drawing attention to the SVG regulator in that it has done something towards strict regulations, but realistically those with SVG licenses obtain them in order to have more flexibility than an Australian, European or American license would afford them.”
Furthermore, Zakharova explained that because major talent pools and infrastructure are all concentrated in developed financial markets economies, "SVG may well continue to issue licenses, but to smaller white labels, firms based in secondary markets, or those with a shorter-term business model."
“Ultimately, [the regulator] is a straw man rather than an actual regulator, and a large proportion of the trading world fully understands that," noted the FXOpen executive.
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