5 Things You Should Know About Selecting A Forex Brokerage License

Regardless of the fact that the competition in online retail FX industry is all time high, more and more entrepreneurs and investors plan on starting a Forex Brokerage.

In previous years, in order to start brokerage activity, expert technologies and market knowledge were usually required, combined with significant amount of free capital, but to date, progress in the sphere of technologies and enhancement of opportunities for obtaining regulatory licenses have significantly reduced costs and "time-to-market".

In this article, we will talk about the most important things to consider for selecting a jurisdiction to incorporate your forex brokerage business.

The income you plan to receive

• Low (less than $100 thousand)

• Average ($100-$500 thousand) 

• High (more than $1 million)

Target Markets and Regions

• USA (NFA License is obligatory) or Japan

• Europe or the Russian Federation

• Asia

• Australia (ASIC License is mandatory), etc.

Financial Risks that you are willing to take

The answer on the foregoing question will apparently determine the model of activity you should select, namely: Market Maker/Dealing Desk (sometimes referred to as "B Book") or full STP. With STP, all turnover and risks are transferred directly to the bank or the liquidity provider.

It should be taken into account that the requirements for the regulatory capital are usually higher for the Market Maker/B Book model, because the risk is assumed independently. For example, the Financial Conduct Authority (FCA) of the UK requires that the regulatory capital for the STP license shall be 125,000 euros and for the Market Maker license - 730,000 euros in addition to the application and annual fees.

Type of services you plan on offering

The main model of brokerage activity in the Forex market or the model of the Fund Manager's activity, or a combination of the two above-mentioned business models?

In some jurisdictions, a separate fund manager license is required, and in others, it is not. For example, Cyprus has a separate registration process as a fund manager.

Do you have an existing network?

If the answer to the above mentioned question is "yes", then you can decide to select less expensive and less burdensome regulatory jurisdiction, even if this jurisdiction may not be universally accepted as an authoritative regulatory environment in comparison with similar FCA of the UK or the Australian Securities and Investments Commission.

Below we have provided a comparative overview of the regulatory jurisdictions in a range of popular Forex markets：

USA, Japan, and Switzerland: High requirements for capital (more than $20 million), significant expenses from core activities, serious and detailed reporting requirements.

Time for registration: 1-2 years.

Cyprus, UK, Malta, Australia: Recognized jurisdictions with good reputation, moderate to high requirements for capital, moderate expenses, insignificant reporting requirements.

Time for registration: 

• Cyprus - 3-6 months

• The UK - from 7 months to 1.5 years

• Malta - from 6 to 10 months

• Australia - from 6 months to 1.5 years

Belize, BVI, Seychelles, Labuan, Bulgaria: Jurisdictions with low to moderate requirements, low requirements for capital, low to moderate operating costs, minimum reporting requirements.

Time for registration:

• Belize - from 4 to 8 months

• British Virgin Islands - from 3 to 7 months

• Seychelles - from 2 to 6 months

• Labuan - from 1 to 3 months

• ​Bulgaria - 2 to 4 months

St. Vincent, Marshall Islands: Jurisdictions with low requirements or completely unregulated jurisdictions: no capital requirements, no license required, no reporting required.

Time for registration: 5-10 business days.

In the end, it is your responsibility to consider all aspects of your business model and determine which jurisdiction and license will ultimately best suit the model in the future.

Fazzaco is a global leading B2B financial information platform that helps Fintech companies and Forex brokers find business partners. If you are interested in starting the activity of FX broker, please see the category of Forex Licensing/Legal Companies at our webiste for your reference.