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by Shavasb
Every entrepreneur looking to start up a forex brokerage should first decide
the jurisdiction in which the headquarters of the business will be based
before proceeding with other issues. This involves a lot of prepatory work
and is one of the crucial decisions that a forex startup needs to take,
since it also has a big impact on the cost structure of the firm.
The regulatory authority could be an EU member state, or one of the offshore
jurisdictions such as BVI or Cayman Islands.
Cyprus has taken the lead among EU member states for being the market leader
in attracting applications for setting up forex brokerages because it was
the first country to regulate the forex industry. Strange that it may seem,
many jurisdictions have not regulated the forex brokerages. The fact that
Cyprus moved first to regulate the industry has been very beneficial, since
during the last couple of years, Cyprus has managed to attract well above 50
foreign firms to apply and secure regulatory license and base their
operations from the east Mediterranean nation.
The majority of the forex applications to Cyprus are made by Israel and
Russian citizens.
There are many firms who help in the licensing process with the fee scale
ranging from EUR 12.000 to EUR 25.000 depending on who is the consultant.
The regulator is the Cyprus Securities & Exchange Commission (CySEC) which
usually gives its answer within 4 months.
Once the license is granted, the investment firm will need to hire licensed
persons to head each and every department for which a license application
has been made. For investment firms that wish to hold client funds, the
minimum capital is EUR 200.000.
Based on first hand experience, the annual costs of a Cyprus Investment Firm
licensed to trade in forex amounts to a minimum of EUR 350.000 and can
increase to EUR 1 mln depending on the number of staff and the services the
firm intends to offer.
On the other hand, those who apply for a regulated license from an offshore
jurisdiction like BVI or Cayman Islands will also need to pay between
$20.000 to $50.000 to secure the license, but the annual operating expenses
are substantially lower.
The big difference between an EU and offshore jurisdiction is that while the
EU obliges the investment firm to employ licensed persons for every
department for which it has secured licensing and is being offered, an
offshore jurisdiction has no such requirement, meaning that one person can
effectively run the business.
And since all investment firms can white label the electronic trading
platforms from other established firms, which essentially means the trading
is all automated, then one may argue why the need to become regulated in the
EU and not outside.
Here arises the next question of where you intend to be active? If as a
forex brokerage you plan to operate within the boundaries of the EU, then
it’s obvious that you need to have a license from one of the EU27, otherwise
you will be breaking securities laws.
But if you wish to operate in countries where there are no strict
regulations and you think you can get away with this, then by all means, an
offshore jurisdiction has lower operating and maintenance costs.
The decision obviously will have a significant impact on areas of operation
and the cost structure of the forex brokerage.
Eurivex is a leading
forex
brokerage firm in Cyprus. The Eurivex Cyprus Investment Firm was
established with a vision to provide wide varieties of trading products to
Online forex brokersat the minimum cost possible.
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