Forex and Contracts for Difference (CFD) brokers from around the world have been increasingly turning to offshore jurisdictions to obtain licenses, to the benefit of themselves, their clients and even the offshore regulators who see their jurisdictions’ economy and reputation thrive from the presence of these companies.
To deal with the increasing global regulatory pressure, many reputable brokers have wisely diversified their regulatory portfolio, obtaining licenses from multiple offshore jurisdictions in addition to their European, UK and Australian licenses; some well-known companies even operate solely on their offshore licenses.
This approach allows them to take advantage of more favourable trade leverage levels, marketing strategies or promotions, offer CFDs on cryptocurrencies otherwise not accepted by some other regulators, and generally reach traders from more regions globally, among other benefits.
Another factor that brokers should have in mind when looking for new opportunities in offshore jurisdictions is that more and more of these jurisdictions are enforcing requirements on economic substance, requiring companies to set up local offices and employ local personnel, in response to international tax and compliance guidelines.
Banking and payment provider options are also presenting a challenge with opening bank accounts for offshore regulated entities, with some financial institutions even requiring legal opinions to be provided for certain regulations and others requesting other reputable licenses that brokers might have with other regulations.
From our years of professional experience in the industry, Deneo Partners have identified the key areas which Forex and CFD brokers look into and evaluate when selecting the jurisdiction that best matches their business model and strategic goals moving forward:
· Reputable regulator & jurisdiction: Regulators like the Seychelles’ Financial Services Authority (FSA) and Mauritius’ Financial Services Commission (FSC) have long since become prominent figures in the regulatory map for new starters and existing global brokerages alike, indicating a sound and profitable business environment for Forex brokers, increasing their competitiveness by attracting clients from more countries worldwide.
· Favourable business environment: Brokers opt for jurisdictions in which both they and their clients feel comfortable dealing with, taking into consideration moderate regulatory and reporting obligations, tax regimes, running costs, and short timeframes to be licensed and begin operations.
· Type of services to be offered: Most brokers’ business model is designed for A-Book, also known as Straight Through Processing (STP), and B-Book, also known as Market Maker, as well as for the provision of Portfolio Management services, all of which are offered by most offshore regulations.
· Regulatory requirements & annual costs: Each offshore jurisdiction regulator has specific requirements of its licensees when it comes to minimum amount of initial capital, number of shareholders and directors, compliance, audit and professional indemnity insurance, among others, which brokers need to evaluate before deciding on the jurisdiction. For example, while the BVI FSC has a regulatory capital of up to US $1 million, the operational costs are low and it also offers a favourable tax environment and economic stability in the long term.
· Timeframe to be licensed: The standard period to obtain a license and begin operations in most offshore regulated jurisdictions is 4 to 6 months, while registrations such as in St. Vincent and the Grenadines allow brokers to begin operations in 2 to 3 weeks.
· Local presence requirements: Many regulators favour local substance from their licensed companies, including a local office where resident employees and directors are based, with Vanuatu joining their ranks in the last year; a factor which can vary per jurisdiction. In some cases, this can also assist brokers in having favourable tax rates, i.e. in Seychelles.
· Banking availability: Banking is generally a dynamic environment, particularly when it comes to the Forex and CFD industry, with banks and other alternative payment institutions changing their requirements for opening corporate and client bank accounts for brokers near on a day-by-day basis.
Further down is an overview and comparison of some of the popular offshore jurisdictions to obtain a dealer license from, including the basic requirements per regulation, estimated application timeframes and banking/e-money institution (EMI) providers availability:
Though officially it is considered a registration rather than an offshore regulation, the St. Vincent and the Grenadines continues to offer a quick and easy way to operate:
To contact and book a consultation with Deneo Partners, please click here or email us at info@deneopartners.com and through our social media at:
• Facebook: https://www.facebook.com/deneopartners/
• LinkedIn: https://cy.linkedin.com/company/deneo-partners
