The forex market today is estimated at trillions of dollars, while forex brokers are very popular in it, but without a forex license, a brokerage company does not have the legal right to process traders’ transactions.
The activities of brokerage companies that do not have a forex license are considered illegal and unsafe, and traders bypass such companies. Each jurisdiction has a regulator that controls transactions in this market and licenses brokers. Brokerages might generate several queries from these agencies. Forex brokers require licenses to avoid regulatory issues and attract new consumers.
Jurisdictions Worth Paying Attention To
The first question for a forex broker is the choice of jurisdiction in which a novice forex broker can register a business and obtain a license forex broker at the best price and in the shortest possible time.
Taking into account factors such as price, the term for obtaining a forex license and the reputation of the jurisdiction, all countries are divided into several categories.
- Category A countries: USA and Switzerland. These jurisdictions are the most prestigious, and forex licenses obtained from local regulators provide access to clients with the greatest financial opportunities, respectively, the requirements and prices are also high. The minimum equity of a forex broker in the US should be $20 million. The term for obtaining a forex license is 1–2 years.
- Category B countries: United Kingdom and Australia. These countries have lower capital and reporting requirements. UK licenses cost $22-50,000 and take a year to get. The minimum capital is $100,000.
- Category C countries: Cyprus, New Zealand and Malta. These jurisdictions combine price, quality and access to the markets of other countries (for example, the EU for Cyprus and Malta under the MiFID Directive).
- Category D countries: Belize, the British Virgin Islands, the Cayman Islands and Vanuatu, are the least demanding in terms of the size of the authorized capital and previous experience in the introduction of brokerage.
Vanuatu is the best choice for a forex broker starting out in this market. From the moment of receiving all the necessary documents, the process of obtaining a Forex license takes only 2–3 months. The minimum authorized capital is 50 thousand USD.
Who Issues A License To A Broker?
The license is issued by special organizations called regulators. You can also ask fintech lawyers from Fintech Harbor Consulting for help in obtaining a forex license. The latter performs the following functions:
- check the broker for compliance with the requirements for issuing a document;
- in the course of the work of the broker, they regularly check its activities for the absence of the fact of violations;
- if violations are found, the license is revoked.
A client of a licensed broker gets the opportunity to recover lost funds if the broker goes bankrupt. The money comes from a compensation fund. Also, the regulator is actively involved in litigation between the broker and the trader.
Users of a licensed broker also receive a guarantee that the company is operating in an honest manner. They may not worry that the broker will suddenly start using fraudulent schemes. After all, the regulator constantly checks the work of the broker – if he “scams”, traders will instantly know about it.
Important: the regulator can provide support to traders only in the country in which it operates.
If you’re Ukrainian and choose a broker with an FCA license (UK jurisdiction), the regulator won’t help. The latter can only benefit UK nationals. You must work with a licensed Ukrainian broker to obtain regulator help.
