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Thinking about starting your own Forex Brokerage? The first logical question is "Where is the best location to incorporate and license your broker?".
However before we proceed on to answer this question, there are other related questions a person who has a serious interest in opening his FX Brokerage needs to answers.
Q1) Which regions are your going to concentrate on for retail clients?
Q2)When do you plan on launching your company & product?
Q3)How much money do you plan on establishing your brokerage?
Q4)Which business model are you going to have ? (STP,Market Maker,DD,Mixed)
Q5)Which bank will open you a corporate bank account?(depends on license & country of incorporation)
Q6)How're you going to collect the payments from your clients?
For the purposes of answering the question, we will divide certain geos(regions) in Tiers based on the level of reporting, capital requirement & tight regulated environment each jurisdiction has.
1) Tier 1 :
To safeguard investors from fraudulent and ponzi schemes, many countries have established private or state owned organizations to monitor and regulate the Forex Market and are actively supported by the governments. Example of countries in this Tier are JAPAN(FSA JAPAN) & USA(NFA & CFTC).
There are profound reporting requirements, broker required to provide high quality in services and prove the availability of $20 Million USD of free liquid capital not including clients money. There is also a compulsion to have local offices and a significant membership fee as well.
2) Tier 2:
Regulations like FCA UK & ASIC Australia fall under this category. These jurisdictions require lower initial capital and are committed to reporting. Obtaining a license from these authorities may take anything between 6 months to a year depending on how fast the required documents are submitted.
Applying for a license from these regulatory authorities typically requires one to have a minimum of $100,000 USD of non client funds. The cost for this is approximately $35,000 to $50,000(depending on what license you take) for example if you plan to have a Dealing Desk which doesn't forward the liquidity flow to a third party then you need to show a high availability of disposable liquid funds available approximately $1 Million USD where as for STP(Straight Through Processing) models where you forward all the liquidity flow it's about $100,000 USD.
Offshore with certain level of protection for investors like Cyprus(CySEC),, Malta(MSA), New Zealand (FSP) are the Tier 3 jurisdictions.
These regulators require the availability of a local office, simpler reporting & very low taxes. Specially Cyprus which offers good access to EU and is also ESMA compliant. The cost for CySEC range from 125,000 Euro to 750,000 Euro depending which model you're going for STP or Dealing Desk and the process time remains on par with the Tier 2 regulators.
BVI, Marshall Islands, Belize & Seychelles are the Tier 4 jurisdiction and have a official regulation and license the broker needs to obtain if providing FX Instruments. Obtaining a license and getting a license usually takes 3-4 months and cost around $20,000 to $30,000 USD with a $500,000 USD in capital requirement(Belize). Also with these licenses it's easier to open and maintain a bank account.
There are certain offshore jurisdictions Like St. Vincent & Grenadines or Bermuda where there getting a Forex license is not compulsory. Setting up a company needs only a little capital and the money saved can then be used on operations or marketing.
It's a bit difficult to obtain an account in a credible bank for Tier 5. Most startups go around this issue by listing their company for more than one service for example Consultancy, Marketing,FX, Travel etc or through EMIs which can provide an online IBAN. (B2B accounts mostly).
Many big brokers around the world start with small licenses and obtain their bigger licenses much later such examples include big names like Alpari, Admiral, Primus etc.
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Topics Include:BVI FSC Forex Brokers What is the BVI FSC? Responsibilities The Role What the BVI FSC can Do for You? Forex Trading in the British Virgin Islands and BVI FSC Forex Brokers. For those of you considering Forex trading as an investment, the first hurdle you need to clear is to find yourself a Forex broker in the British Virgin Islands. Obtaining a BVI Forex License. To obtain a British Virgin Islands Forex License you will need to have a company in the British Virgin Islands that is specifically formed for the purpose of providing forex activities. During the application procedure you are required to submit special Memorandum and Articles of Association. The British Virgin Islands (BVI) Financial Services Commission (FSC) is responsible for the financial services that are carried out within the BVI. It hosts a number of Forex Brokers that aim to expand their businesses in other regions with different restrictions and lower tax rates. BVI offers a well established framework for companies willing to provide financial services. It is perceived as a member of the classical trio of Offshore Forex – Belize, Seychelles and BVI. The financial services are regulated by British Virgin Islands Financial Service Commission (BVI FSC). The December 2001 enactment of the Financial Services Commission Act, 2001 established the British Virgin Islands Financial Services Commission as an autonomous regulatory authority responsible for the regulation, supervision and inspection of all financial services in and from within the BVI. ... Forex Place Ltd. Action Date: Saturday, 6 April ...
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