Operating with no license: is it realistic in 2021?
The situation with licensing in Forex has drastically changed over the last five years: above all, new regulations hit the ability of unlicensed companies to accept payments, thus creating a significant obstacle for their operation
By Vasily Alexeev, CEO UpTrader.io
In this short review, we have covered the viable operating models of Forex brokers today. Perhaps surprisingly, despite the stricter legislation, there are always ways to work around the rules.
Amid the sweeping restrictions imposed on unlicensed brokers, it would seem that this model is obsolete, but such brokers are still there in numbers, and new companies continue to enter the market quite successfully. So, is it possible to work without a license? Easy: it takes one month and $2–3K to register a business in, say, the Grenadines, and only your passport is required.
There’s a downside, however—you won’t be able to accept payments through the banking system, bank card transfers, and well as advertise your business legally. You’ll also likely face problems with popular payment systems, you won’t be able to operate officially in jurisdictions where providing Forex services without a license is prohibited, and there are fewer and fewer counties where licensing is not a requirement. However, it’s not all bad. China and Thailand have long banned Forex, but hundreds of brokers continue to exist there. They work with local payment systems and operate perfectly fine. These systems work almost with any brokers—the key is to reach an understanding. Other than that, cryptocurrency payments are getting more popular every year.
There’s also the issue of trust—it inevitably arises because of the stigma attached to an unregulated broker. As a proof of reliability, brokers can connect to Serenity—it’s a smart contract-based blockchain escrow. Serenity guarantees the security of deposits and completely eliminates any potential misappropriation of funds in the accounts of clients. Serenity has already earned the trust of a wide audience of traders. The system is easy to integrate, and with the growing popularity of cryptocurrency, it’s important that all payments in Escrow can be processed through the crypto exchanger SerenityPay.io. It’s a win-win situation for everyone.
“Offshore lite” licensing
The second option is more complex and more expensive: registering your broker with at least some kind of legality. The most popular licenses are in Seychelles and Labuan (Malaysia). You’d have to pay €50–70K, and the registration would take about nine months. As a result, the broker receives a permit to operate in these countries.
The access to banking and the international transfer system SWIFT allows brokers to attract bigger clients. Such a license also means access to liquidity providers, and hence better trading conditions, which gives a competitive advantage. A Labuan license means access to Malaysian banks.
The main downside—such a license allows operating only as an STP (Straight Through Processing) broker. If a broker plans to work with A-book, STP is a plus. However, if we’re talking about a B-book broker or a hybrid model, this would make things difficult. Another downside is the annual expenses on staff and office in these countries, as it’s required by the jurisdictions: about $70K a year.
It’s also worth noting that these licenses still don’t give access to bank card transfers.
Mastercard doesn’t accept transfers from brokers without European or American licenses, Visa still does, but more and more reluctantly, and is expected to follow the example of Mastercard. Plus, these licenses don’t open the way for official advertising.
The most valuable licenses
The third path, the most valuable and most expensive, is acquiring a European or American license. The price tag starts at €1 mln, the waiting period is at least two years. As a rule, during this time, the company passes all conceivable procedures of business auditing, upon the completion of which a license will or will not be issued for your business. The upsides are obvious—all payment methods: SWIFT, VISA, Mastercard, any payment systems. All kinds of advertising: online, radio, TV. This option is obviously great for reputation and trust, and so forth.
The downsides are also there: aside from the high price, licensing also imposes restrictions on the trading conditions: the leverage is limited to 1:50, and it’s prohibited to offer and advertise bonuses. Any violations can result in massive fines. Revoking of the license is also a reality: in 2019, Russia’s central bank terminated the licenses of four brokers out of five.
The bottom line is that there always ways to operate despite the stricter regulations.
Read more about how to choose jurisdiction?
Launch market analytics feed in your Forex CRM
Which extra services do you offer your clients? If you think that a trading terminal, fast fund withdrawal, and copy trading services are enough to keep your clients loyal and satisfied, then you may not know your clients very well or have never tried to offer them something else.
One of the UpTrader brokers broadcasts a daily stock market analytics feed and technical analysis to its clients right in their personal account. Its CEO kindly allowed us to analyse their data for 2021. We considered two client groups: those who read analytics and those who do not. The results speak for themselves.
In 2021, customers who read analytics deposited on average 15% more per customer compared to those who did not use this tool. The median bill was 25% higher. At the same time, their trading volume increased by 230%!
Do you want the same results? Easy-peasy!
Daily up-to-date market analysis available in the trader’s room might increase the trading volumes of your company, resulting in more potential profit. This tool is already integrated into the UpTrader Forex CRM, however, only a few of our clients use it for additional sales.
Every day, market experts collect information, prepare materials, and publish technical and fundamental market analysis used by thousands of traders around the world.
This tool is already available to you in UpTrader Forex CRM. To begin broadcasting the feed, contact our support team, and you will gain access to an excellent tool for increasing sales and loyalty of your customers starting tomorrow.
Withdrawing funds from trading accounts is a very important part of business, because there are plenty of underlying issues that can cause serious reputational consequences for a broker and stress for clients. Fraud, stop-outs, withdrawal requests for a bigger amount than available equity, mismatch of payment details, problems with payment systems, KYC/AML non-compliance and a lot of other problems.
To avoid these problems and make withdrawals without risks for a broker and fast for a client, it is better to follow a certain procedure, where every step is under control of your departments. Your Forex CRM must have flexible settings of an approval withdrawal system.
The UpTrader team has developed a flexible withdrawal approval system that is integrated in UpTrader Forex CRM. For example, you can set it up so that your CEO will be making final approval of withdrawal requests of certain big amounts. You can set up this rule for all requests or only for those that are already approved by lower-ranking staff. It’s up to you. It is very important to verify your client with a KYC check, confirm payment details, to do this just direct all requests through a Compliance department. In some cases you might need requests approved by a phone call, so that you are sure that requests are submitted by a real client, not a scammer, so you can set up obligatory manager calls.
All these settings can be easily added in UpTrader Forex CRM.
UpTrader Forex CRM has the following settings you can use:
1. Approval depending on request amount
Withdrawal control is a standard and necessary procedure for financial broker security, but this doesn't have to prevent traders from withdrawing and depositing money quickly. For example, you can allow to withdraw all requests under $100 without additional checks. It means any withdrawal under $100 will occur automatically, but in a case you want to manually approve any amount, you can do it.
2. Know your client system in your Forex CRM.
Establish a rule that requests of any amount are directed to a Compliance department to complete KYC procedures.
3. A withdrawal amount is larger than the client’s deposit
If you hedge risks and use a hybrid model and a bridge, you probably need to control trading activity especially in an important market news period to control financial risk.
If you have special needs related to withdrawal approval procedures, write to [email protected] and we will see what we can do for you.
The main annual international fintech exhibition iFXEXPO will be held on 4-6th October 2021 in Cyprus. Vasily Alexeev, UpTrader CEO is going to be there. He will represent the UpTrader team and be ready to meet with our clients and partners.
UpTrader has released new services this year like a copy trading platform for MetaTrader 4 and MetaTrader 5, and it will be a pleasure to show you this popular service.
We are glad to invite all our clients and partners over there. This is a good occasion and nice place for efficient networking.
To make an appointment with Vasily Alexeev, please write to [email protected]
See you there!
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