24 Jul Choosing the form and place of brokerage business registration: what you should know
The financial market has undergone dramatic changes in the last decade. This is not only related to various changes in the monetary policy of the Central Banks, financial crises or the emergence of new digital money called crypto-currencies. No. The market succumbed to rapidly developing technologies and fully adapted to the needs of its key clients – the traders. Similarly, brokerage companies have adapted to the market conditions, which provide their customers with trading terminals, up-to-date quotes and allow them to make deals even without leaving home or using a smartphone. But along with this, the threshold of entry into this business has become much more complicated for the brokerage companies, where all the complexity lies in obtaining a business license and registration.
The thing is that not every country has a regulatory framework on which a brokerage business can fully function. The situation with the forex market is even more difficult, which in the regulatory legal acts is indicated as an interbank platform, which excludes the possibility of the exchange speculators to trade on it. A number of central banks simply do not have a controlling body and do not act by this organization to regulate the activity of brokerage companies. As a result, there is no legislation that would allow the broker to work in the legal field, and there are also no monitoring organizations that could guarantee the safety of investors’ funds.
That is why, most brokerage companies go by detours and open a business in the countries and on the territory where it is possible to obtain a license and officially register a business.
If we speak about a license broker in the financial market, we should highlight 3 main areas where you can get it:
- LFSA (Malaysia): A relatively new type of license, which gives a full-fledged right to conduct business in the Forex market. This type is popular with its threshold for entry, which is not so high, but the amount of necessary cash balances can exceed several hundred thousand.
- IFSC (Belize): It is the most common option for obtaining a license, because in this case the broker gets the opportunity to work in the legal field and take the business to a new level. Also, this form does not require large sums of money to start a business, and it also does not have high tax charges, which is a major advantage for the start-up companies.
- FCA (England): The Financial Supervision Service in England is the most stringent controlling body in this list. This organization regulates the activities of all financial companies and brokers, including those registered in the jurisdiction of the United Kingdom. Undoubtedly, the availability of this license is authoritative in the market, but it is not easy to get it due to the complicated registration process and extremely high entry threshold. Therefore, most companies receive this license after a successful start of business and with the aim of scaling the enterprise.
Also, most companies choose directly offshore zones, which greatly simplifies the process of opening a brokerage business and allows forex brokers to work in the legal field without having high entry thresholds, and also allows the company to get free from taxes at the initial stage of the company’s opening:
- Saint Vincent and the Grenadines: perhaps the most popular type among the offshore brokerage companies. The advantage is that you do not need to have a license to open a brokerage business, and the company is exempt from tax charges. Probably, this is the reason why 90% of all the forex brokers are registered on this territory.
- Vanuatu: this region is also gaining popularity due to the provision of tax incentives, and more recently, the possibility of obtaining a license has been introduced in this territory. This license covers both the forex market and other financial assets. The Republic of Vanuatu offers such advantages as no requirements to the local staff, no requirements for a local office, no requirements for the size of the authorized capital, there is a monthly and annual cost for the renewal of the company and a license. Thus, you get the opportunity to work within the offshore, and at the same time get a license, which will play a role for your business for attracting new customers or large amounts for investment.
- Panama Islands: one of the largest offshore zones. Not only the forex companies are registered in this territory, but both large legal companies and private individuals also keep their money here. The advantage is closed information and a lack of tax collection.
- Seychelles: They are also an offshore zone with completely confidential data about their customers. Here, companies are not obliged to pay taxes and conduct an audit of their activities as well, which is advantageous for brokers in their early stages.
- British Virgin Islands: a very popular offshore zone, which falls under the British jurisdiction, but at the same time it is an offshore zone. Here, you will not receive an FCA license, but nevertheless the company will be registered in the UK.
- Cayman Islands: probably, the most popular offshore zone in the 90s, but today most businesses have lost interest in these islands. The thing is that these islands can provide information at the request of regulatory authorities, which reduces its competitive advantages over the other offshore zones.
If you select the most effective options, there will be two clear leaders: to obtain the IFSC license (Belize) and to register the business in Saint Vincent and the Grenadines. These two options allow you to conduct a brokerage business in the legal field and license your activities, while you will not incur large both time and cash costs. Undoubtedly, when creating a brokerage business, you should reduce the financial costs and register a business in an offshore zone. But if you want to build a long-term and reliable company, you still have to get a license.