A Global Overview of Forex Broker License Regulation

Similar to the daily fluctuations of your favorite currency pair or CFD, the regulatory landscape of the forex trading industry seems to always find itself in a constant state of volatility. Consider the leverage changes currently happening in Europe, or how rapidly the NFA increased capital in the United States as just a couple of recent examples.

Whether you are an entrepreneur interested in starting your own forex white label, or an existing forex broker, it’s crucial to be familiar the latest regulatory changes before applying for a forex broker license. The overview that follows will provide a basic outline of global regulations, which will no doubt be useful to both existing and new forex brokers alike.

European Union / Europe

Regulator: Country dependent, CySEC (Cyprus) and Malta MFSA Being the Most Popular

Capital: €150,000 for STP; €750,00 for Market Making / Dealing On Own Account

Maximum Leverage: 30:1

A forex broker license in Europe is unique in the sense that it allows “passporting” across any of the 28 EU member states. As an example, brokers that currently hold a forex license in Cyprus have permission to target clients throughout all the states which belong to the EU.

CySec, which is the regulatory body overseeing forex trading in Cyprus, is by far the most recognized regulator in Europe. Although a few exceptions exist, Malta being one example, the majority of forex brokers ultimately end up applying for licenses in Cyprus. The reason that Cyprus is the de-facto region for obtaining a forex broker license is due to the ease in obtaining the license and its general recognition throughout Europe.

United Kingdom

Regulator: Financial Conduct Authority (FCA)

Capital: £125,000 for STP; £730,00 for Market Making

Maximum Leverage: 30:1

The regulatory body which oversees forex trading in the United Kingdom is the FCA (Financial Conduct Authority). A major advantage for brokers licensed by the FCA is that non-professional trading accounts are protected by the Financial Services Compensation Scheme (FSCS). Those new to forex regulation may wonder why this matters. Here’s why the FSCS is so important: in the event that a forex broker declares bankruptcy, the FSCS will step in, protecting up to £50,000 in deposits for each and every trading account held by the broker in question.

Forex brokers that are licensed by the FCA carry a high level of prestige as it is one of the most respected and recognized forex broker licenses in the world. The tradeoff, however, is that applying for an FX broker license in the United Kingdom is quite expensive. In addition to an office in London, all FCA licensed brokers must employ local directors, send a variety of reports to the FCA on a regular basis, maintain proper accounting and keep bank accounts segregated at all times.

Australia

Regulator: Australian Securities and Investments Commission (ASIC)

Capital: $1 Million (Australian Dollars)

Maximum Leverage: Soon to be Changed

Until recently, forex brokers licensed by the Australian Securities and Investments Committee (ASIC) were not subject to leverage restrictions, making this license one of the most desirable in the world. Due to recent regulatory changes, however, the maximum leverage allowed in Australia will shortly reflect levels seen in Europe. In addition, proposed changes by ASIC pertaining to CFDs and the onboarding of non-local clients places a massive question mark on the future of forex trading in Australia.

Asia

Regulation in Asia takes place in 3 major regions: Japan, Hong Kong, and Malaysia. After the United States, Japan is recognized as strictest regulator in the world, making it very difficult to target investors without a local presence. For this reason, it only makes sense to obtain a forex license in Japan if your broker wishes to establish a major presence there.

Forex trading in China is forbidden by the government. Brokers attempting to operate out of mainland China face serious financial and criminal penalties, which is why there has been a push from Chinese brokers to seek regulation in other jurisdictions. Regulation in Hong Kong is possible, but not an attractive option for most FX brokers due to the costs in obtaining the license, ongoing expenses, and limited leverage.

From our experience, the best jurisdiction in Asia to obtain a forex broker license would be Labuan, Malaysia. A Labuan forex broker license in offers several advantages over comparable jurisdictions in Asia. First, the capital requirements are relatively low. Secondly, forex brokers licensed in Labuan have access to a myriad of banking options, which is more challenging for brokers in all jurisdictions to obtain. Finally, the approval process in Malaysia is one of the fastest in the world, allowing brokers to quickly and efficiently get started.  

New Zealand

Regulator: Financial Markets Authority (FMA)

Capital: $1 Million (New Zealand Dollars)

Maximum Leverage: 50:1

Once a hotbed for unregulated brokers, New Zealand has since emerged into a respected regulatory jurisdiction. We wish to highlight that a physical presence in New Zealand is now required by the FMA, the local regulator. Additionally, brokers that wish to obtain a license in New Zealand must provide a business plan which reflects a focus on the local market. Finally, the capital threshold of $1m New Zealand dollars is a relatively large barrier of entry to overcome. Unless your brokerage intends on establishing a presence in New Zealand with a focus on the local market, we suggest exploring alternative jurisdictions.

United States

Regulator: CFTC & NFA

Capital: $20 million

Maximum Leverage: 50:1

The United States was once one of the largest markets in world for online FX trading. Starting in 2008, however, the rapid increase in broker capital requirements set by the CFTC led to a massive market consolidation. With capital now sitting at $20 million, a prohibition of CFD trading, and reduced leverage, few, if any new forex brokers consider entering the United States due to these extremely cost prohibitive barriers to entry.

Africa

Regulator: Most Noteworthy Include: South Africa FSB, Kenya CMA, Mauritius FSC

Capital: Starting at $50,000

Maximum Leverage: Region Dependent

Forex regulation in Africa is very much in its infancy stages, especially when compared to Europe or Asia. The majority of African countries have no specific regulation, however, there are three regions worth consideration.

Mauritius, which is often classified as an offshore region, is quite a popular regulatory jurisdiction for European or Asian-based brokers that require more flexible leverage requirements. It’s up to debate whether Mauritius is considered an offshore jurisdiction or should be categorized as one of the few African countries that provides a regulatory framework for online forex activities. For the purposes of this guide, however, we’ve included it as part of Africa.

Secondly, if one were to purely speak of the African continent, then South Africa happens to have the most established history of forex broker regulation. From our experience, a forex broker license in South Africa is best for choice for those looking to target one of the hottest markets in Africa. Just note, however, that the local regulator, the South Africa FSB, will require proof of  intent to establish local presence in South Africa before a license is approved.

Finally, Kenya is a relatively new entrant on the stage of forex regulation in Africa. Having only recently begun to offer licensing, it’s an excellent region to consider for brokers looking to expand into Africa, offering licenses for both Market Making and STP business models. Note, that similar to South Africa, a significant presence in Kenya is required in order to obtain this license.  

Offshore Jurisdictions

Regulator: Region Dependent, most well known are Vanuatu VFSC, Mauritius FSC, and the Seychelles FSA

Capital: Starting at $50,000

Maximum Leverage: Unrestricted in Nearly all Cases

Despite massive changes in Europe and more recently in Australia, the offshore regulatory landscape has been relatively consistent over the years. Exceptions, however, do exist. Paid up capital in Vanuatu was recently increased from $2,000 to $50,000. Additionally, the Belize IFSC also recently chose to hike capital requirements up to $500,000.

Regulatory policies in offshore jurisdictions vary from region to region. Due to the many jurisdictions which are categorized as “offshore” it is recommended to contact our team of consultants for guidance in determining the region that best fits your broker’s requirements.

Middle East / GCC Area

Regulator: Region Dependent

Capital: Starting at $100,000

Maximum Leverage: Extremely Limited; Dependent Upon the Region

Forex regulation in the GCC / Middle East is recognized as limited in scope and extremely costly to operate. Capital requirements tend to be extreme, leverage on all products is limited, and in most cases a physical presence with experienced directors is a strict requirement. For these reasons, the majority of brokers with a presence in the Middle East tend to obtain licenses in European jurisdictions like Cyprus and the UK, or obtain a forex broker license in an offshore destination.

Obtain a Forex Broker License with Atomiq Consulting

With so many jurisdictions around the globe to consider, it can be overwhelming to decide which is the best regulatory region for your business, especially when you are just starting the process of launching your own forex brokeage. Given our decades of experience in the foreign exchange industry and regulatory expertise, Atomiq Consulting is more than happy to guide you though the process, especially if you are completely new to online foreign exchange trading.

If your forex brokerage is looking obtain a license in any of the jurisdictions we’ve outlined above, don’t hesitate to contact our team of experts today. We are more than happy to answer your questions, discuss any of the above regions in further detail and send over a price quote for our services.

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