A forex license is a financial services license which enables forex institutions to function as legal and regulated brokers in the foreign exchange industry. It also allows for a forex company to operate in their chosen jurisdiction.
Obtaining such a license will allow a company to operate in the largest financial industry in the world. Foreign exchange is now largely an internet environment to conduct business internationally and across all currencies. Investors from all backgrounds can open a trading account with a forex brokerage firm and begin currency trading via an internet connection. The accessibility and ease of trading forex makes it easy to comprehend why the industry has developed so rapidly.
Forex License Fundamentals
The procedure for obtaining a forex license can be rather lengthy and complex. It requires compiling and submitting a broad range of legal documents that outline and detail your business plan.
It is advised that startup brokers seek the guidance of a professional firm in order to select the most suitable jurisdiction according to their individual requirements. Along with this, experienced professionals can ensure that the license is acquired in a timely and professional manner.
Selecting a Broker Licensing Jurisdiction
To acquire a forex license and become a fully licensed brokerage firm, it is essential to determine which jurisdictions are most favorable to the company’s requirements. The following are some aspects which need to be deliberated when choosing a jurisdiction:
- Minimum capital requirement: Each jurisdiction has a different requirement of minimum capital that needs to be deposited in order to qualify for a license. This amount will depend on the size of the company and the specific services that they will offer.
- Processing time: Depending on the chosen jurisdiction, the regulatory body has a varying processing time to standardize applications and issue the license.
- Tax regulations: With the tax regime varying between regions, finding one which benefits your company the most in terms of capital gains and profits is important.
- Software and IT requirements: As the entire business is conducted on an internet platform, fast, accessible and user-friendly software will be required to conduct forex business.
- Marketing plan: Once the broker license is set up and the software is running smoothly, it is essential to market your business effectively in order to appeal to a large audience and generate a substantial clientele.
Acquiring a Forex License
In order to obtain a forex license in your chosen jurisdiction, the factors outlined above need to be taken into consideration. Choosing a jurisdiction is probably the most important factor as it essentially determines various aspects of your new brokerage business. For example, if a company chooses to register a forex company in Cyprus, they will be regulated by CySEC which is an internationally recognized regulatory authority. They will therefore be required to operate in full compliance with the regulations imposed by CySEC.
In determining which jurisdiction your forex company is registered in, a forex license determines which body regulates them, which in turn determines the credibility of the company. The regulatory authority ensures that the company is not harboring any money laundering or fraudulent activity whilst carrying out forex trading.
Once the jurisdiction has been selected, the next step is to compile the relevant legal documents in accordance with the regulations. Along with the submitted documents, the forex broker will have to carry out a fit and proper test. A fit and proper text is a legal procedure which needs to be completed in order to assess the company holder’s knowledge and expertise in the foreign exchange industry. Without successfully passing the fit and proper test, a forex company cannot be established in the chosen jurisdiction. Shareholders and directors may also be required to complete a fit and proper test.
Becoming a Regulated Broker
The process of acquiring a forex license entails liaising with the chosen jurisdiction’s regulatory body and abiding by the legalities of that specific jurisdiction, as well as administering and submitting all of the required documentation and credentials. In order to determine which jurisdiction is most advantageous, it is advised to employ a professional firm which specializes in the acquiring of forex licensing and broker set up. Startup brokers that require post-formation services such as fx software, legal advice, compliance, banking and accounting solutions, will find that a specialist firm with experience in assisting brokers will prove to be crucial.