Changes in forex regulation of offshore jurisdictions

Changes in forex regulation of offshore jurisdictions

Forex startups opt for easy and budget-friendly solutions for company registration and market access. Due to their favorable…

Forex startups opt for easy and budget-friendly solutions for company registration and market access. Due to their favorable conditions, low costs, and credibility, they often choose forex licenses in well-regulated jurisdictions like Belize, Mauritius, Seychelles, and Cyprus. Operating under a regulated license provides trust and protection for the company and its clients. However, some solutions on the market don’t require a specific license to provide international forex services. For example, well-known forex companies, such as Olymp Trade, IQ Option, and Libertex Forex Trading, are registered in Saint Vincent and the Grenadines, an unlicensed but legally compliant location. However, this trend is becoming less popular.

On January 6, 2023, Saint Vincent and the Grenadines Financial Services Authority (SVGFSA) announced new requirements for all companies engaged in forex activities. Due to the dramatic increase in the frequency and number of complaints and allegations of fraud against companies registered in St. Vincent and the Grenadines that engage in forex or brokerage activities, as well as the potential detrimental impact on the reputation of the island itself, the SVGFSA decided to tighten regulation of the industry. As a result, the SVGFSA has adopted a strict policy that sets out the following:

A) companies must provide licenses in the jurisdictions where their activities will be carried out. If a particular forex jurisdiction does not require a license, a letter issued by the regulator of the relevant jurisdiction may be sent to the SVGFSA stating that no license is required to conduct such activities.

B) existing companies will be given a transition period of 45 days until March 10, during which they must provide the SVGFSA with the necessary licenses from the jurisdictions in which they operate.

Failure to comply with these requirements will result in sanctions against companies under the Financial Services Authority Act.

In this regard, there was a need to select new solutions similar to the loyal regulation of Saint Vincent and the Grenadines, which existed before the advent of new rules, when forex activities do not require a special permit in the form of a license or other relevant document. At the same time, the action will be conducted internationally, as much as possible, without risks and strict obligations.

The first exciting solution on the market is Nevis (Saint Kitts and Nevis), where forex activity is not a licensed industry. The only requirement on the island is that a Nevis entity cannot advertise itself as a licensed forex business inside or outside of Nevis. Registration of the company will cost relatively inexpensively and quickly. But now, this jurisdiction is less popular regarding international forex activities. This island is expecting a large influx of new businesses in the brokerage and forex industry due to the changes in St. Vincent and the Grenadines.

The other solution is St. Lucia, a popular alternative to Nevis for forex company registration. However, despite its simplicity and affordability, the island is facing a growing number of complaints, like Saint Vincent and the Grenadines. Starting in 2022, forex businesses in Saint Lucia are required to have a license, even if they do not operate locally. Nevis and Saint Lucia may no longer be viable options for forex companies in the near future as projects are looking for more reliable and prestigious jurisdictions.

Everything goes to the fact that the Seychelles and Vanuatu will be the trending Forex solutions in 2023. Prestigious projects will move there to offshore but more reputable countries with precise regulations. These projects will cost more and take longer to implement than Nevis and Saint Lucia, but this will be fine for severe Forex projects. Both Seychelles and Vanuatu offer offshore zone taxation, one of the lowest state and regulatory fees, flexible regulatory conditions, loyal supervisory policy, and licensing requirements in general.

Forex companies in Seychelles and Vanuatu are regulated by the Seychelles Financial Services Authority (FSA) and the Vanuatu Financial Services Commission (VFSC), respectively. Both regulatory bodies require Forex companies to obtain a license and adhere to specific regulatory requirements to ensure compliance with anti-money laundering and other financial regulations. 

Seychelles license offers the following activities laying under the license functional: trading and other operations with securities, broker activity in the sale of securities, including margin trading, acceptance of orders for the purchase/sale of securities and their execution, and managing another person’s portfolio of securities.

The Vanuatu solution is more complicated in terms of licenses divided into 4 types: A, B, C, and D. Each license implies the right to trade a certain amount of assets and instruments.

However, it’s important to note that the regulatory framework in Seychelles and Vanuatu may be less strict than other (European, Asian) jurisdictions, so it’s crucial for investors to carefully evaluate the risks and benefits of investing with Forex companies based in these countries. When comparing these two jurisdictions, one must take into account the specifics of their status, because risks are not excluded. For example, the jurisdiction of Vanuatu is on the gray lists of the EU, which means that it will be much more difficult to open accounts for a Vanuatu forex company than for a Seychelles one.

Other prestigious solutions exist, such as Cyprus with its CySEC regulator in Europe. The Cyprus forex solution is undoubtedly one of the market’s most famous European and international solutions. Cyprus is an ideal option for those: 

  • who want to have European regulation at a relatively low cost;
  • who want to work with citizens of all EU countries and at the same time be able to work with clients from the CIS and Asia;
  • who want to have access to a reliable banking system and get more profit through loyal taxation conditions.

Depending on the functionality, Cyprus offers 2 types of licenses – STP Forex License and Market Maker License. Under what certain license the project falls depends on the scope of planned activities and peculiarities of forex entity work.

Often, big forex brokers that want to operate as legally as possible in many countries choose to obtain several licenses in different jurisdictions. The bright examples of such companies are AVA Trade (one of the licenses this company has is Cyprus), Interactive Brokers, eToro (with a Seychelles license), etc.

In any case, the selection of a specific solution for a forex business will depend primarily on a budget of a forex startup, target markets, business model, and, most importantly, needs.

Forex and brokerage are high-risk industries. Therefore, the international community is trying in every possible way to put pressure on the territories that offer the reproduction of unlicensed forex brokers. The “deoffshorization” policy also contributes directly to these restrictions. However, today there are still solutions that provide a reasonably loyal industry regulation regime, or rather the absence of such regulation.

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