Jurisdiction for Start-Up FX Brokers in 2023

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As one of the largest and most liquid financial markets globally, the Foreign Exchange (FX) Market offers numerous opportunities for ambitious entrepreneurs looking to establish a forex brokerage business. However, in 2023, navigating the regulatory landscape has become increasingly challenging, with requirements for forex brokers changing almost weekly across jurisdictions.?

To address (or perhaps initiate for some) the debate surrounding "the best jurisdiction for start-up FX brokers," I analyzed data from 1,425 active retail FX brokers. Active status implies that the FX broker operates a functional website offering spot FX products, is associated with at least one retail trading platform (2 or 3 in some cases) and has a "social" footprint within the last month.?

Some of these FX brokers function as “white labels” for larger brands, while others operate independently.?

If you are considering starting up as an FX Broker in 2023 add Know Your Country AML risk table as a browser favorite, it will help you to

a) resolve 50% of the debates on the jurisdiction topic, and??

b) keep you informed of all significant legal changes (because compliance is the cornerstone of the FX business today).?

?Now, let's focus on the data.?

?Jurisdictions for retail FX brokers are highly segmented with no single preferred jurisdiction, except for Saint Vincent and the Grenadines (SVG) at 19.23%, and the United Kingdom (UK) at 9.05%.?

?Despite being frequently touted by consulting companies, it may come as a surprise to learn that Labuan and Vanuatu did not manage to secure a position among the top seven jurisdictions. Notwithstanding its 91 “Money Brokers” licenses, Labuan (FSA Registry) didn’t make it to the top 7, mostly because half of the companies from the registry didn’t qualify for the “Active” status. In comparison, the Vanuatu Financial Services Commission (VFSC) had 63 companies holding Financial Dealer Licenses, as of March 14th, 2023, of which 43 made it to the list, having “Active” status.?

As someone who consistently monitors these lists, I must mention that the Labuan Registry has grown fourfold compared to 2020 (when it had 19 brokers). Conversely, Vanuatu has experienced a decline, as the number of licensees has nearly halved compared to 2020-2021 (the registry had around 250 licensees at one point versus 63 today).?

Let's examine each jurisdiction individually.?

1. ?St. Vincent and the Grenadines (SVG) - 19.23%?

Despite recent revised business requirements in SVG for FX brokers and the controversies related to the challenges of not only obtaining a bank account but also setting up a simple payment service provider (PSP) for a company based there, SVG remains the top jurisdiction for incorporating a forex broker – but perhaps not for long.

It is worth noting that SVG-based companies, as well as those in any other unlicensed jurisdiction, will not be able to collaborate with the most popular trading platform providers, as many of them require the presence of a financial license or "active status" in the FSA registry. As a result, these companies will be forced to seek alternative platforms. Furthermore, most reputable liquidity providers will not work with firms incorporated in SVG.

?2. United Kingdom (UK) - 9.05%?

The UK, a prominent financial hub, is an appealing jurisdiction for forex brokers, despite the high cost of obtaining an FCA license. As of 2023, over 100 FCA-regulated forex brokers were in operation. The credibility and reputation associated with the UK justify the higher capital requirements and operational costs (you can read more about costs here) . Strict leverage and regulatory framework are not stopping the growth of FCA licensees.?

However, after looking closely at FX Brokers listing the UK as a Jurisdiction on their websites, I discovered that quite a few “Brokers” are not licensed as such.?

Here are some of the common registration codes used by “FX brokers” that list the UK as their Jurisdiction on their website:?

• 64991 - Security dealing on own account?
• 66120 - Security and commodity contracts dealing activities?
• 64999 - Financial intermediation not elsewhere classified?
• 64205 - Activities of financial services holding companies?
• 66110 - Administration of financial markets?

I am not an expert on legal matters, but it is no wonder the FCA issues so many warnings for unauthorized businesses.?

3. Hong Kong (HK) - 5.68%?

The Hong Kong Securities and Futures Commission (SFC) regulates forex brokers in this region. Hong Kong, accounting for 5.32% of the total table, is a somewhat challenging jurisdiction for forex brokers. It is quite surprising that many FX brokers from Hong Kong made it onto the list, as Type 3 license require ~ USD 400,000 in liquid assets (when company is an approved introduced agent) or ~USD 4mln + in all other cases.? ?

Type 3 Licenses are known to be the most used for retail FX brokers. Although, brokers from my list were using Licenses Type 9 and Type 4 on their websites, as well as few others not related to retail FX services.

4. Cyprus - 5.19%?

Cyprus, holding 4th place, is a well-established jurisdiction for forex brokerage companies. As a European Union member, Cyprus adheres to the MiFID II framework, ensuring a robust regulatory environment. The Cyprus Securities and Exchange Commission (CySEC), oversees forex brokers in the country. The most popular license type is the STP License because it requires 4 times less capital compared to the Full Market Maker License. Annual running costs can get quite high, but obviously still manageable with the CySEC registry having over 100 Licensed FX Brokers.?

5. Mauritius – 4.77%?

Full-Service Dealer/Discount Broker/Broker?

Mauritius has been recognized for its favorable business environment for quite some time. The Financial Services Commission (FSC) is the regulator here, providing a balanced regulatory environment with a relatively low capital requirement of below $50,000 and operational costs ranging from $10,000 to $25,000, depending on the type of license.?

Obtaining a license takes an average of 6-8 months. Many of my contacts have reported that the license is more difficult to acquire for new brokers, but the process is still feasible and well-established.?

6. United Arab Emirates (UAE) - 4.63%?

The United Arab Emirates and the Middle East in general, is an attractive destination for forex brokers, due to its expanding financial sector and strategic location, particularly in the last few years.? The Central Bank of the UAE and the Dubai Financial Services Authority (DFSA) oversee forex brokers in the region, providing a robust regulatory framework. Once again, many Forex Brokers use the UAE Jurisdiction on their website but aren’t regulated there.??

7. Indonesia - 4.14%?

Despite its challenging regulatory environment, Indonesia's large FX market makes it a desirable location for retail forex brokers. Indonesia is one of the most populous countries in the world, with a large and growing middle class that is increasingly interested in investing and trading in the financial markets. This has led to a rise in the demand for retail forex trading services in the country.?

The Indonesian Financial Services Authority (OJK) regulates the sector, offering a not so easy and not so favorable, regulatory environment for startups. The costly and lengthy processes are more suitable for larger, more established businesses that possess significant self-capital and other financial products as part of their portfolio. Retail FX Services are mostly offered by Futures Exchanges there.??

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Curious to learn about the other Jurisdictions that made the Top 20 list??

Download the Most up-to-date and Comprehensive Comparison Analysis of Forex Jurisdictions for Forex Brokers in 2023 with Sources, covering:?

• Name of the Jurisdiction?
• AML Ranking?
• Regulator Website?
• Type of License?
• Initial Capital Requirement??
• Time to incorporate?
• Office/Director Requirements?
• Estimated Annual Expenses?
• Cost of Incorporation and Agent Fees?
• Government/Regulator fees?
• Overall reputation among retail traders and the industry in general?

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Keep in mind that the regulatory landscape is constantly evolving, staying up to date with changes is essential to maintain compliance and avoid potential legal issues.

This article does not constitute legal advice, and readers are encouraged to seek professional advice from a qualified expert in the relevant field for any specific legal matters or concerns they may have.?