Diversification – a closer look at current events

Diversification. We always stress the importance of being on the lookout for “what else” is moving now that the global markets are accessible by almost everyone. The US markets are following stress related trends with Nasdaq up over 4%, S&P up by 2.6%, Dow was up by 1.4% on the closing day of the Fed’s rate hike. Where the world is expecting a hard landing, the Feds take the 50 year low unemployment rate of 3.6% as a sign that the US is not going through a recession. “It doesn’t make sense that the economy would be in a recession with this kind of thing happening” said Fed Chairman Jerome. If we were to diversify, what options do we have?


Turbulent times – current risks to the global economy

Disruptions on supply chains from major events in different parts of the world resulted in flow restrictions of food, energy and technological advancements. Going back to the 2007-2009 financial crisis, which spread around the world and triggered a collapse in cross-border trade, to the pandemic, a horrific war and everything else in between – i.e a container ship blocking the Suez Canal (12% of global trade is handled by the Suez Canal which translates into a disruption of $9.6 billion worth of goods – according to an analysis by Bloomberg)

diversification

The war in Ukraine escalated geopolitical tensions. The world is not only dividing again into East/West but geopolitical tensions between any country that had scores to settle with another over the past half century, are amplified. Tensions are rising between the big and the small, the east and the west, the left and the right, the rich and the poor, the nuclear and “the other nuclear”.

Now combine:

  1. Geopolitical tensions
  2. Faster than expected tightening of financing (due to interest rate hikes) across the globe
  3. Covid related disruptions

…and you have a salad that doesn’t even taste like a salad. Confusing even to the best of us, our policy makers, who struggle with the thin line of doing too much/too fast or too little/too late.  Like your mom’s casserole dish that is either not enough, or enough to feed 4 families.

diversification

Story for another day but past the interest rates, if stricter policies are implemented by dominant countries to combat the supply chain disruptions (like export bans, price controls or subsidies on essentials i.e. food/gas), we’re heading in a whole new direction. Deglobalization and/or regionalization (example of RCEP – Regional Comprehensive Economic Partnership signed in 2020 with 15 Asia-Pacific members pinky swearing their free trade agreement) are both gaining ground. More and more countries/regions turn inwards, to decrease their interdependence that globalization created over time. Germany is a current example for why deglobalization is a hot plate, but as I said it’s a story for another day.

What is Regionalization? The way that an area of the world containing several countries becomes more economically or politically important than its individual members.

Back to diversification. What is currently happening to the rest of the world (outside North America)? According to the World Bank:

East Asia and Pacific: Growth is projected to decelerate to 4.4% in 2022 before increasing to 5.2% in 2023. Europe and Central Asia: The regional economy is expected to shrink by 2.9% in 2022 before growing by 1.5% in 2023. Latin America and the Caribbean: Growth is projected to slow to 2.5% in 2022 and 1.9% in 2023. Middle East and North Africa: Growth is forecast to accelerate to 5.3% in 2022 before slowing to 3.6% in 2023. South Asia: Growth is projected to slow to 6.8% in 2022 and 5.8% in 2023. Sub-Saharan Africa: Growth is forecast to moderate to 3.7% in 2022 and rise to 3.8% in 2023.

diversificationThe global growth trend is on a downward spiral and although we would love to see the growth rate of emerging and developing countries growing faster than the advanced/developed countries, it’s not. No one likes the classifications developing / emerging / developed but this is the plate we’ve been served. If everyone says it’s a hot-dog, we can’t go around saying we’re serving lobster.

What is a developed country? A country that meets certain criteria relative to the quality of life of its citizens. Mature economy, GDP per capita, birth/death rates, political stability, industrialization, technological infrastructure, a financial sector integrated to the global financial system. The United Nations developed the HDI Index (Human Development) that classifies from 0-1, countries with the highest quality for its residents. Any score of 0.80 is considered developed. Anything lower is developing.

Examples of developed countries include Norway, Switzerland, Ireland, Hong Kong, Iceland, Germany, Sweden, Australia, Netherlands, Denmark, Singapore, US, Finland and many more – Cyprus is somewhere in there too, I promise.

Why invest in a developed country?

Due to lower risk of economic and political instability, analysing potential returns can be more accurate. Tensions between nations are constant but there’s still a degree of safety compared with less developed countries. Also, the more developed a country is, the stricter its regulations are ensuring more accurate reporting and book keeping. A broad categorization we see in ETFs include Europe, Australasia and Far East (EAFE).

Currently we see contraction throughout the EU area with Italy, Spain, Sweden PMI Composites lower, FTSE 100 lower, Italian FTSE MIB Stock index lower, Madrid’s IBEX 35 index supported by listed bank’s gains, Australian ASX 200 retreating from 7 week highs as cost of living pressures slowly deplete spending power, New Zealand’s NZX 50 up by 1.5% although its jobless rate ticked up in Q2 2022, Singapore/Hong Kong’s private sector growing amid sustained COVID 19 recovery although rising living costs are dropping people’s confidence.

What is an emerging country? A country with considerable economic growth that has some (but not all) the characteristics of a developed country. It’s said to be in transition from developing to developed. Knock-knock. Who’s there? BRIC. BRIC who? Exactly

Quick Note: nothing against the other acronyms coined over the years like RDEs, CIVETS, MINT, Next Eleven (N-11). We’re mentioning the BRICS as a diversification example (with current news worth mentioning).

BRIC is a political and economic grouping of the world’s leading emerging market economies created in 2009. It initially comprised of Brazil, Russia, India and China. With the addition of South Africa in 2010, the organization came to be known as the BRICS. If you thought the EU was heavily populated with under half a billion, think of BRICS having a little over 3 billion people working, producing, procreating (what-what), influencing.

The BRICS nations saw the need for a new financial institution resembling the IMF which materialized into the BRICS Development Bank (or New Development Bank – NDB) – established in 2014 with an initial capital of $50 billion and headquartered in China.

Russia announced in June 2022, that a new global reserve currency (resembling the IMF’s SDR) is in discussion to be comprised by Real, Rubles, Rupees, Renminbi and Rand.

What is an SDR? The Special Drawing Right is a reserve asset created to be exchanged with other reserve assets of member countries at times of need. Comprised of USD, JPY, EURO, Chinese RMB, GBP with different weightings adjusted by each currency’s current prominence. If an IMF member country needs liquidity, it can exchange its SDRs for useable currencies held by other members. Their SDR holdings go down but they get liquidity in the currencies required to meet balance of payment, add to their own reserves, pay IMF loans or add to their quota increases. If countries hold onto their SDRs they earn interest. They also pay interest on their cumulative allocations at the same rate.

Note: A mammoth $650 billion allocation of SDRs was approved in 2021 to support the IMF members in their battle against the pandemic, especially the most vulnerable ones.

globalization

Why invest in an emerging market? Because of the potential for high growth. We know that changes in the US economy tend to travel to the rest of the world. Will it be the same moving ahead with more raised eyebrows on globalization?

We currently see the Brazilian Bovespa index (Ibovespa) closing a bit higher, boosted by commodity linked stocks, bank stocks, web services (although its industrial output in June showed contraction), we see Russian Stocks extending decline with the MOEX index closing lower with forecasts for an even larger GDP contraction, Colombia’s exports of fuel, coal, briquettes, agriculture rising to $5.5 billion (Colombia has an HDI of 0.767 that meets most criteria of a developed country but is sill classified as an emerging market. Major exporting partners are the US, the Netherlands, Panama and India). India’s trade deficit continues to grow due to increase in fossil fuel imports while BSE Sensex calms down with Kotak Mahindra Bank boosting the index higher along with “Better food for more people” Zomato’s corporate earnings. Indonesia’s Bank Mandiri releasing increased earnings (Indonesia is emerging as a confident middle income country).

So what is a developing country? A country that has a low per capita income. Characterized by lower quality of life for its residents, it could be a country with less access to safe drinking water, poor quality infrastructure, no potential for technological advancements, diseases, and energy deficiencies, no regulatory oversight.

Because of no regulatory oversight, it’s very hard to develop an equity market (known to push and accelerate growth). Therefore, news relating to developing countries will be relevant to their exports/imports, inflation rates, and other economic indicators. Randomly picked examples are Uganda’s inflation rising to 7.9% (mainly due to food, transport, furnishings), Sri Lanka posting a trade surplus from exports in textile and garments, industrial products or Zimbabwe inflation reaching a staggering 257%.

There’s so much more to talk about, relevant to diversification. Morningstar’s portfolio strategists are comparing diversification to insurance (it has a cost and might not always pay off, but when it does you’re glad you had it). Diversification comes in many sizes and forms. We barely scraped the surface here by looking into country classifications. One article at a time we will be looking into jumping from asset to another asset class, assets within their own asset classes, regions, sectors, funds, portfolio allocations like the 60/40 (which might need some calibration due to the current state of global economy – although there are other ways to avoid a DIY portfolio by targeting balanced funds, or target date funds whose allocation shifts as time for needing the money comes closer).

Stay tuned!

US inflation & Interest Rates – Coming in for a Hard or Soft Landing?

Looking at inflation in the US economy from a birds eye view and contemplating the possible outcomes of its central bank taking on mano-a-mano the +9% inflation rate, using an aggressive interest rate policy. Hmmm… Soft landing? or hard landing.

But what does an aggressive interest rate policy do? Well, as you would correctly think, it slows down an economy. It makes it harder for businesses (and consumers) to raise money, pulls back on spending and inevitably investing, with the hope that inflation will be reined in before things get out of hand.

Why is inflation so high? Consider all the push to support an economy during a pandemic, as well as the primary, secondary and tertiary sectors all out of whack. The Central Bank is mandated to intervene and stimulate the economy with monetary and fiscal policies that promote confidence, spending and investments. The more the economy grows, the more confident people get, the more they spend. And as long as the Interest rates are raised but at a decent pace, things could go back to normal given enough time.

 

 

But then an invasion of-all-things-possible takes place, sending diplomacy/politics/dialogue/tea-time/ out the window. Russia fills 10% of the World’s oil supply needs and together with Ukraine fill 25% of the world’s wheat supply needs, exporters of corn, barley, neon/palladium used in the production of semiconductors (the shortage of which is expected to run through all of 2023), all disrupted by the war. And what do you know? You eat a popsicle and end up with $25 in lumber for the stick. Inflation is the new black.

 

Slowing down an economy while combating inflation though, is the precondition of stagflation (or recession-inflation) – currently a popular meme. Stagflation (its friends call it Stag), refers to a stagnant economy with very high inflation, and a driving force for high unemployment. Ponder this – higher costs on essentials (food/gas) and less income/jobs. Stock and Bond markets hate Stag. It’s like an archvillain to a superhero, a nemesis, a world eater. And due to the Crypto correlation to the Stock Market, we should be looking at a drop there too.

Past examples of stagflation happened in the 70s after the collapse of the Bretton Woods agreement. With oil embargos creating supply shortages and increasing energy prices, the Fed’s policies to help the situation resulted in inflation dropping but with increased unemployment. As Ray Dalio (Bridgewater hedge fund founder) pointed out, “inflation was reduced by people and companies being painfully squeezed out of spending. This will be the case this time as well”. Dalio also said that “High inflation almost always requires a Recession to normalize”.

Remember: A central bank’s Primary Goal, is the balance between inflation and unemployment. Keep prices in check, with as many people as possible employed and happily spending.

 

Think of an economy like a garden. A beautiful garden needs water, balanced diet (fertilizer), sun, and care. Keeping everything in balance requires hard work but the outcome is almost never in your control. You might overwater, underwater, use the wrong fertilizer, overfertilize, plant in the wrong place (shady or sunny), prune at the wrong time, force majeure (or force manure) ending up destroying your hard work.

Such is the life of a central bank. Constantly caring for the garden, making decisions with the Primary Goal in mind. Problem is that when you overwater a garden, you can’t stop watering completely. When you use the wrong fertilizer, you can’t remove it from the soil. Most of these problems, you have to live through. Root rot might occur in the process leading to fungi diseases, yellowing and dropping of leaves.

Interest rate hikes will help to reduce inflation but will worsen other parts of the economy as they take away a consumer’s spending power, which is a direct hit on businesses, their stock prices and the economy’s growth as well.

So soft landing Vs hard landing when it comes to cooling down an overheating economy

How can one expect an inflation caused by disease and war to be fought with pets and sweet talks? Soft landing requires more moderate than aggressive policies and cools down the economy like a breeze in a hot summer day. Economic contraction is unavoidable but does not lead to a recession.

What is a recession? By definition, recession’s in the air when an economy is contracting (shrinking) for two or more consecutive quarters.

What about hard landing then? A plane landing at high speed (which is where the term got its name) is still a landing, not a crash. Yeah, but… how would you rate your enthusiasm (spending/investing) if you knew your plane is possibly going to hard land? Not very calmly I suppose. So aggressive measures take place, consecutive interest rate hikes with one higher than the other, to salvage what you can.

Large funds, ETFs and billionaire investors extraordinaire are not as pessimistic as most, like peaceful protestors in a situation they have no control over. Not only do they look domestically on what’s what but also internationally to take advantage of markets not overrun by recessionary triggers.

All in all, surf the market waves cautiously because these are unprecedented times we live in (unprecedented relative to this generation) and diversify. The retail investments world has come a long way to open up markets previously unattainable by your average intelligent mammal. When one market screams, another might sing. You just need to know what to look for.

Belize Forex License | Definitions and Application Requirements

Currently considered one of the top offshore forex license options, the Belize forex license has established itself among one the best to have. With a higher capital requirement, the Belize option provides some insight into the level of capital available and seriousness of the Broker associated. Belize also offers a favourable Tax framework. Although there are reporting requirements, physical presence for board meetings is not required (with other solutions being acceptable). Belize maintains a good reputation in trader communities (compared to other offshore jurisdictions).

 

to answer the most frequently asked questions we receive on a Belize Forex License:

 

  • Local office with at least 1 employee is a requirement
  • The capital requirement is $500,000

 

How does someone start the process to obtaining a Belize Forex License?

 

As with most licenses, the first step is the formation / incorporation of a Belize company followed by the process of collecting/submitting the necessary documents and finally evaluation and approval/rejection of the license by the regulator. Further questions, documents might be requested throughout the process but with the final approval, the license fees are paid to the regulator and the steps for opening a corporate bank account to deposit the capital requirement can start.

If you have Institutional business as a network and operate through a forex IB or White Label program, jurisdictions like Belize may be considered a “pricier” option when considering to start your own brokerage, but it does give a strong impression regarding the seriousness of your business. Unlike working unregulated, Belize will provide comfort to your clients who need a regulated broker to support their trading needs.

 

Find out which brokers are registered in Belize today as well as the country’s latest economic data.

 

In this regard, some of the documents required (but not limited to) are:

  • An accurately completed application form, signed and notarized
  • Details and Data on directors and shareholders with documentary evidence of information provided
  • Copies of passports, proof of country residence and bank statements separately on each shareholder and director all of which must be notarized
  • A CV for each shareholder and director
  • A comprehensive business plan
  • Clean criminal record from each of the respective countries of origin for each of the directors / shareholders
  • Letters of reference from Banking Providers

All documents that are presented in the case for application and company formation should be complete, duly signed and notarized by a Belize notary. If the original documents are not in English, these should be translated and certified locally. For government issued documents, there may be a requirement for these to be apostilled.

 

Information on the corporate structure requirements of a Belize forex license

 

Shareholders and Directors are not required to reside in Belize, however they are required to have appropriate background and experience fitting their roles. They should have a clean criminal record. There must be a local director (Belize resident) on the board. In order for the process of the license to begin, a local entity must be established with all the relevant documents and information submitted. Belize is FATCA compliant, but still maintains the discreet handling of banking and transaction details.

A company that is looking to acquire a Belize license, will be required to have a capital adequacy of no less than $500,000 and will be required to pay a yearly fee of $25,000. The company will be required to keep up-to-date records and maintain regular reporting with the regulator at the prescribed periods (Reporting will include – but not limited to – capital, income, as well as the number, volumes and values of all executed trades. It is important to select the name of the company correctly and according to the guidelines of the Belize authorities.

In order to benefit from the various corporate incentives for operation of international business, it is important to note that no transactions should be conducted with local Belize entities or individuals and that the Belize Dollar should not be a currency offered for trade / transaction.

 

Looking for a Belize Forex License? Contact us today too look into the details

Time frames to get the Belize forex license:

It’s in the discretion of the national regulator to approve, ask questions or even reject any application depending on its complexity and structure. Process should be completed within 3-6 moths from submission of application. Our initial (internal) assessments are usually enough to identify problems (if any) in the early stages, thus maintaining excellent time frames.

 


 

How allFX-Consult can step into this picture:

allFX-Consult is a capital markets and forex consulting agency, catering to quality rather than quantity. For over a decade, our Directors have been connecting with some of the best individuals/professionals, service providers and brokers the industry has to offer so that we can meet any forex corporate challenge.

Because of this, allFX-Consult always has a counterpart/partner for any corporate structure. Before we make any recommendations, we thoroughly examine all possibilities. We’re chosen for being discreet, detail oriented and deadline driven.

Contact us for a private conversation to discuss your case through the contact form or one of our emails at info@allfx–consult.com, partners@allfx-consult.com.

#forexlicense #offshorelicense #belizeforexlicense #forexib #whitelabel

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IFD/IFR – The new prudential framework for Investment Firms

Following the publication on the 5th of December, 2019 in the EU Official Journal regarding the Investment Firms Directive (IFD) and Investment Firms Regulation (IFR), the new IFD/IFR regime came into force on the 26th of June, 2021 as originally planned.

The idea behind the new IFD/IFR framework is to separate (via classification) past regulatory standards set to regulate large banking groups with regulatory standards proportionate to the size/activities/risk of Investment Firms, at EU level.

Although designed for reasons more sophisticated than a simple description, IFD/IFR aims to regulate in such way that depending on the business practices, size and interconnectedness with other players, a potential failure of the investment firm can be “wound down in an orderly manner with minimal disruption to the stability of the financial markets”.

The larger scale firms will be classified as Credit Institutions and be regulated according to those standards, whereas for the rest of the Investment Firms, capital requirements will be calculated according to a Permanent Minimum Requirement, a Fixed Overhead Requirement and a new set of standards called K-Factors.

K-Factors take into consideration all those characteristics that pose a threat – external/internal (Risk to Customer, Risk to Market and Risk to Firm) – and calculate the requirements accordingly.

A practical guide to the IFD/IFR was published by CySEC with all the relevant information. The guide’s link can be found in Circular 355, point 6. A summary of the guide is provided below.

 

Under the IFD/IFR framework, there are four (4) classes of Investment Firms:

 

Class 1A – Characteristics:

  • Investment Firm with current initial capital requirements of Euro 730,000 [that carry out any of the activities referred to in points (3) and (6) of Section A of Annex I to Directive 2014/65/EU (points (3) and (6) of Part I, Annex I of the Law)]
  • systemically important firm due to the Risk to Market threat its size and activities pose
  • will seek authorization as a Credit Institution
  • is not a commodity and emission allowance dealer
    • bet you didn’t know that emission allowance dealer was a thing, did ya? Google, also a thing, states the following “to incentivise firms to reduce their emissions, a government sets a cap on the maximum level of emissions and creates permits, or allowances, for each unit of emissions allowed under the cap. For a given permit price, some firms will find it easier, or cheaper, to reduce emissions than others and will sell their permits via a dealer.”
  • is not a collective investment undertaking “not investing  funds in various securities, real estate and other assets, with the sole aim of spreading investment risks
  • is not an insurance undertaking “authorised under the law of a territory within the EEA to carry on insurance business
  • the total value of the consolidated assets of the undertaking is equal to or exceeds EUR 30 billion
  • the total value of the assets of the undertaking is less than EUR 30 billion, and the undertaking is part of a group in which the total value of the consolidated assets of all undertakings in that group that individually have total assets of less than EUR 30 billion and that carry out any of the activities referred to in points (3) and (6) of Section A of Annex I to Directive 2014/65/EU is equal to or exceeds EUR 30 billion
  • the total value of the assets of the undertaking is less than EUR 30 billion, and the undertaking is part of a group in which the total value of the consolidated assets of all undertakings in the group that carry out any of the activities referred to in points (3) and (6) of Section A of Annex I to Directive 2014/65/EU is equal to or exceeds EUR 30 billion.

 

Class 1B – Characteristics:

  • Investment Firm with current initial capital requirements of Euro 730,000 [that carry out any of the activities referred to in points (3) and (6) of Section A of Annex I to Directive 2014/65/EU (points (3) and (6) of Part I, Annex I of the Law)]
  • will remain under CySEC supervision under CRR2/CRDV for prudential requirements(article 1(2) of IFR).
  • is not a commodity and emission allowance dealer
  • is not a collective investment undertaking
  • is not an insurance undertaking
  • total value of the consolidated assets of the investment firm is equal to or exceeds EUR 15 billion
  • the total value of the consolidated assets of the investment firm is less than EUR 15 billion, and the investment firm is part of a group in which the total value of the consolidated assets of all undertakings in the group that individually have total assets of less than EUR 15 billion and that carry out any of the activities referred to in points (3) and (6) of Section A of Annex I to Directive 2014/65/EU is equal to or exceeds EUR 15 billion
  • the investment firm is subject to a decision by the competent authority in accordance with Article 5 of IFD.

 

Class 2 – Characteristics:

  • default categorization for Investment Firms
  • large Investment Firms not classified as Systemically Important, they pose little to no threat to financial markets stability
  • will be subject to new Remuneration rules
  • an investment firm is categorized as Class 2 if it no longer meets any of the conditions mentioned in point Class 3 below
  • will be subject to all IFR rules.

 

Class 3 – Characteristics:

  • subject to IFR but with limited scope
  • non-Systemic SNI (defined as small and non-interconnected investment firms)
  • They don’t undertake higher risk activities
  • They don’t hold client money or client securities
  • AUM (Assets Under Management) measured in accordance with Article 17 is less than EUR 1,2 billion;
  • COH (Client Orders Handled) measured in accordance with Article 20 is less than either: – EUR 100 million/day for cash trades; or – EUR 1 billion/day for derivatives;
  • ASA (Assets safeguarded and administered) measured in accordance with Article 19 is zero;
  • CMH (Client Money Held) measured in accordance with Article 18 is zero;
  • DTF (Daily Trading Flow) measured in accordance with Article 33 is zero;
  • NPR (Net Position Risk) or CMG (Clearing Margin Given) measured in accordance with Articles 22 and 23 is zero;
  • TCD (Trading Counterparty Default) measured in accordance with Article 26 is zero;
  • The on‐ and off‐balance‐sheet total of the investment firm is less than EUR 100 million; 5
  • The total annual gross revenue from investment services and activities of the investment firm is less than EUR 30 million, calculated as an average on the basis of the annual figures from the two‐year period immediately preceding the given financial year. Investment firms under class 3 will be subject to the new IFR/IFD regime but with certain exceptions.

 

IFD/IFR Capital Requirements for Class 2 and 3:

 

PMR – Permanent Minimum Capital Requirement depending on activities

€75,000 – Not permitted to hold client money or securities belonging to its clients

  • Reception and transmission of orders in relation to one or more financial instruments
  • Execution of orders on behalf of clients
  • Portfolio management
  • Investment advice
  • Placing of financial instruments without a firm commitment basis

€750,000

  • Dealing on own account
  • Underwriting and/or placing of financial instruments on a firm commitment basis
  • Operation of an Organised Trading Facility (where the investment firm engages in dealing on own account or is permitted to do so

€150,000

All other Investment Firms

 

FOR – Fixed Overhead Requirement

  • Set to at least ¼ of preceding year’s fixed overheads
  • Excludes variable overheads such as profit shares, fees to tied agents, non-recurring expenses, variable remuneration, losses from trading on own account, tax expenditures

 

KFR – K-Factor Capital Requirement (for Class 2 firms)

  • K-factors are quantitative indicators targeting the measurement of the risk posed by the investment firm to its customers (RtC) and to the market (RtM) but also the risk posed to the firm itself (RtF).
  • A coefficient is used to multiply the K-Factor, with the result being the capital requirement. 

 

Risk to Client (RtC)

K-AUM: Assets under management – under both discretionary portfolio management and non-discretionary advisory arrangements of an ongoing basis (Art. 17 – IFR).

Coefficient – 0,02%

K-CMH: Client money held – captures the risk of potential for harm where an investment firm holds money for its customers taking into account the legal arrangements in relation to asset segregation and irrespective of the national accounting regime applicable to client money. Excludes client money that is deposited on a (custodian) bank account in the name of the client itself, where the investment firm has access to these client funds via a third-party mandate. (on segregated or non-segregated basis) (Art. 18 – IFR).

Coefficient – 0,4% (on segregated accounts) 0,5% (on non-segregated accounts)

K-ASA: Assets safeguarded and administered – ensures that investment firms hold capital in proportion to such balances, regardless of whether they are on its own balance sheet or in third-party accounts (Art. 19 – IFR).

Coefficient – 0,04%

K-COH: Client orders handled – captures the potential risk to clients of an investment firm which executes its orders (in the name of the client, not in the name of the investment firm itself). (Art. 20 – IFR).

Coefficient – 0,1%

 

Risk to Market (RtM)

K-NPR: Net position risk – based on the market risk framework (standardised approach, or if applicable, internal models) of the CRR (Art. 22 – IFR)

Or K-CMG: Clearing member guarantee – Investment firm’s clearing member – where permitted by a Member State competent authority for specific types of investment firms which deal on own account through clearing members, based on the total margins required by an investment firm’s clearing member (Art. 23 – IFR)

 

Risk to Firm (RtF)

K-DTF: Daily trading flow – based on transactions recorded in the trading book of the investment firm dealing on own account, whether for itself or on behalf of a client, and the transactions that an investment firm enters through the execution of orders on behalf of clients in its own name. (Art. 33 – IFR)

Coefficient – 0,1% for cash trades, 0,01% on derivatives

K-TCD: Trading counterparty default – investment firm’s exposure to the default of their trading counterparties in accordance with simplified provisions for counterparty credit risk based on the CRR (Art. 26 – IFR)

K-CON: Concentration – concentration risk in an investment firm’s large exposures to specific counterparties based on the provisions of the CRR that apply to large exposures in the trading book. (Art. 39 – IFR).

 

IFD/IFR – Own funds requirements

 

Investment firms shall have own funds consisting of the sum of their Common Equity Tier 1 capital, Additional Tier 1 capital and Tier 2 capital, and shall meet all the following conditions at all times (Art. 9 of IFR):

  • Common Equity Tier 1 capital /D >= 56% D
  • [Common Equity Tier 1 capital + Additional Tier 1 capital] /D >= 75% D
  • [Common Equity Tier 1 capital + Additional Tier 1 capital + Tier 2 capital] /D >= 100% D

Where D is the highest of own funds requirements as defined in Art. 11 of IFR and described above as:

  • Fixed overheads requirement (FOR)
  • Permanent Minimum capital requirement (PMR)
  • K-Factor Requirement (KFR)

 

Concentration Risk Requirements

Concentrated Risk to an individual client or group of clients is limited to 25% of the Investment Firm’s own funds

 

Liquidity requirements

Investment firms under class 2 and class 3 (subject to exemptions) shall hold an amount of liquid assets equivalent to at least one third (1/3) of the Fixed overhead requirement, calculated in accordance with Art. 13(1) of IFR.

 

Disclosure requirements

  • risk management objectives and policies (Art. 47 – IFR)
  • internal governance arrangements (Art. 48 – IFR)
  • own funds requirements (Art. 49, 50 – IFR)
  • remuneration policy and practices (Art. 51 – IFR)
  • investment policy (Art. 52 – IFR)
  • environmental, social and governance risk (Art. 53 – IFR)

 

Reporting requirements

For deadlines on submission dates please refer to Circular 442 – published on April 21, 2021

  • Level and composition of own funds
  • Own funds requirements
  • Own funds requirement calculations
  • Where the firm is a Class 3 firm – the level of activity, including the balance sheet and revenue breakdown by investment service and applicable K-factor
  • Concentration risk
  • Liquidity requirements

 

Its very important for all new and existing Cyprus Investment Firms (CIFs) to familiarize themselves with the IFD/IFR framework, its obligations and templates. The IFR became fully applicable to all EU member states on the 26th of June, 2021. The IFD was transposed into national legislation and entered into force the same day.

Useful links

 


How allFX-Consult can step into this picture:

allFX-Consult is a boutique forex consulting agency, catering to quality rather than quantity. For over a decade, our Directors have been connecting with some of the best individuals/professionals, service providers and brokers the industry has to offer, ensuring we can meet any corporate challenge relative to how to start a forex brokerage.

Because of this, allFX-Consult always has a counterpart/partner for any corporate structure. Before we make any recommendations, we thoroughly examine all possibilities. We’re chosen for being discreet, detail oriented and deadline driven.

Contact us for a private conversation to discuss any forex related topic through the contact form or one of our emails at info@allfx–consult.compartners@allfx-consult.com. We specialise in training sales teams and forex corporate structures for individuals/corporations that want to Start a Forex Brokerage.

 

You might also be interested in:

Top EU and Offshore jurisdictions | Including brokers registered there & the country’s economic data 

Comprehensive list of worldwide regulators and supervising bodies

What is a Tied Agent | Definitions and detailed information

A consultant’s journey | Your friendly neighbourhood Spiderman? Or… (sorry couldn’t choose between villains)


When looking for a solution to a challenge, there are so many variables to consider and so many options to choose from!

We all think we know what’s best in theory but when the dreaded time comes to make a final decision, everything we thought we knew become a pool of blurry/mushed information. To make things worse we realise that people close to us supporting our decision making process are not enough to give us clarity, maybe because they really don’t know enough or maybe because they’re biased (any future decisions affect them directly). It doesn’t really matter why because we still need to make a decision and therefore forced to look elsewhere for answers. Is it time to maybe say hello to our friendly neighbourhood consultant? Or… not?

 

What constitutes a friendly neighbourhood consultant?

From most consultants’ perspective, if you’re reaching out with a specific question you must have thought about it enough to lean towards a certain direction. So what’s wrong with giving a direct answer to your inquiry, discussing pricing that works and giving you what you want? At the end of the day, a consultant needs to make money too and complicating things might not result in cashie cash-cash.

So staying within a comfort zone, spending the least amount of time/cost and getting the most return out of each case is a dream come true and to each their own… If the person placing the inquiry doesn’t ask for more, why would you step up and complicate things?

Hmmm… here’s why – consulting in its core is neither coaching nor decision making. Due to the number of options one can choose for a specific case, consulting is more like an amazing journey of research/evaluation passed the limitations of the consultant’s network (since that’s where the proposed solutions will be derived from). Now if we can agree that this “limitation” presents a valid argument, how can one assume that the right decision was made only because it follows the direction of the one asking? Especially without considering what else could be done and adding value through the collection of more information and proper due diligence?

 

But there’s so many solutions/providers – when do we know it’s enough?

Irrespective of how many people/providers you talk to or how many solutions you note down, at some point your notes will become repetitive and present some very obvious characteristics:

Most solutions you noted down are of the same nature

When you browse through your notes, you will come to realise that the solutions (even though offered by different providers with minor differences) are the same in nature. So by giving them a definition or a name, you basically merge them under a specific category, a targeted solution. Once you realise this repetition, it’s time to take a step back and look into the following two traits.

The solutions complement each other

Although solutions are straight forward on their own, depending on the case’s requirements/limitations, when combined can form a better structure that fixes a short term challenge and at the same time offer a long term advantage that you wouldn’t have seen otherwise. So not having enough options, limits your perspective into what else you might be able to pull off with minor tweaks or combos. Once you have a more complete picture, you’re almost done.

You’re able to identify the white noise (all “quick fix” options that would eventually lead in problems during actual operations)

There are so many cowboys in the crowd, presenting and selling and pitching stuff (some of them quite good at it actually) and if you’re not careful, you might make emotional decisions (rushing to fix your current problem by adding another one). You tend to forget the rationale of narrowing down, eliminating, choosing the lesser of few evils (because no business decision is actually perfect). Talking to a few people about the same issue, many times results in different answers that allow you to read between the lines.

Why do people give different answers, you may ask? Well like we said before, not everyone’s the same. Some will take your project face value and give a direct but still good service to what you want (so you’re limited by your own inquiry), some will take on your project and give temporary solutions to fix your current issue (knowing it’s a short term fix, in many cases with potentially irreparable future damages) and some will look into the overall picture and give side options/recommendations that make sense. In the end what matters is, whoever’s collecting this information (whether yourself or your friendly neighbourhood consultant), to be experienced enough to read between these lines.

 

Understood!  Then what?

Once these three characteristics are in place, the first step is to identify from the bunch which solutions can actually work on the specific case. As we said above, the correct solutions are the same in nature, so even though you noted down 10 solutions, narrowing them down can result in only 2-3 defined options.

Now that you’ve identified the solutions that can actually work, you can start matching the information derived from the providers and begin the process of eliminating the “white noise”. If you carefully collected the information, you should be able to cross reference the questions/answers of different providers and identify question marks (???), future problems within the solutions they offer.

So where one provider pitched a solution as the answer to your prayers, another might have a different opinion on the matter, for his/her own reasons. The more questions/answers and the more providers you approach for the same option, the better the elimination process of this “white noise” will be. You now have a clearer path as to what can actually cause headaches down the line, even though it might fix a short term problem.

Important note: there’s no right or wrong in choosing a short term fix, as long as you are aware that it’s not going to last. What’s wrong is when a provider pitches this quick fix as a permanent solution. At the same time, if the provider is adamant about this solution (you now know otherwise), it tells you something about this provider as well and whether your interests are actually aligned.

Finally, once you’ve specified the solutions and eliminated the “white noise” (and potentially providers), with this research you allowed yourself to think outside the box and go a step further. All that is left is choosing to move ahead with the solution that fixes your current challenge correctly or combining some of the options and target a long term milestone that you didn’t even think of before this process.

 

So is your consultant a friendly neighbourhood Spiderman or a nameless villain?

The best consultants – where applicable – won’t give you direct answers/solutions to your challenges. They will provide options according to their experience and beyond, and collect information based on these options. They will not be afraid to add or even remove options they suggested in the first place as more information comes forward, thoroughly evaluate and narrow everything down. The final output will be an educated, researched process to work with and not wishful thinking or pulling emotional tantrums.

Some people are more knowledgeable than others but we’ve come to realise that no one is an “expert” in anything. We’ve seen a lot of “experts” over the years that opened/closed shops taking with them some of the integrity of the consulting business. Surely you must have crossed path with a few yourself.

Making the right choice is almost never (at least in the years that we’ve been consulting) the answer to the direct question you asked in the beginning. It’s very difficult for a good consultant to take on your project as is, knowing there could be better solutions to your case. Walking with such a partner down the path of deciding the future of your business, is most definitely a win because where everyone else keeps failing with inadequate information, you will always come on top with solid structures, targeted milestones and a stronger base to work with.

Food for thought (mostly for us) – Still not sure if we’re doing the right thing by being business oriented and not money-hungry hyenas like a lot of our peers but let’s face it, a leopard can’t change its spots and these are the cards we’ve been dealt with.

 

What cards are you dealing nowadays and what cards have you been dealt with?

#leopard #LeopardWithSpots #HyenasThatEatMoney #SpidermanSpidermanDoesWhateverASpiderCan


If you found this information useful, you might also like:

Understanding the nature of a Forex IB

Forex White Label – should you go for it?

What is a Tied Agent | Definitions and requirements  


About allFX-Consult:

allFX-Consult is a boutique forex consulting agency, catering to quality rather than quantity. For over a decade, our Directors have been connecting with some of the best individuals/professionals, service providers and brokers the industry has to offer so that we can meet any corporate forex challenge that comes our way.

allFX-Consult always has a counterpart/partner for any corporate structure. Before introductions/connections take place, we thoroughly examine all possibilities.

We’re chosen for being discreet, detail oriented and deadline driven.

Contact us for a private conversation to discuss any forex related topic through the contact form or one of our emails at info@allfx–consult.compartners@allfx-consult.com. We specialise in training sales teams and forex corporate structures for individuals that want to Start a Forex Brokerage.

 

Forex Affiliate – Should you become one and what are the various programs


 

What is a forex affiliate?

A Forex affiliate, simply put allows a forex broker to use his/her website(s) to advertise, promote or distribute a product/service for a pre-agreed revenue commission scheme.

With the rise of blogs and high traffic websites, affiliate marketing gained huge popularity allowing small enterprises to score big, especially relevant ones that have forex related content like news, signals, trading information and industry service providers.

Especially in the world of forex, where every broker wants a piece of the pie a.k.a. market share, forex brokers are willing to spend thousands of dollars on a single affiliate, if it’s worth it. Each forex affiliate owns a small/big piece of that pie, in different regions of the world, thus rendering the website/affiliate network invaluable to the hungry forex broker willing to get it no matter the cost.

 

Best performing forex affiliate networks

Although any high traffic website owner can become an affiliate, this doesn’t necessarily mean quality leads (relevant leads, converting leads) will travel from the website to the broker’s CRM – usually it’s quite the opposite.

The best performing forex affiliates are ones that provide relevant content to their audience who wants to read or find information and therefore, if you want to succeed and be that invaluable case we talked about, you need to be promoting content relevant to the forex market. That could be broker reviews, market news, in depth analysis and signals, industry information, providing insights that are of value to the forex readers and more.

That being said, readers and online searches today are a lot more aware of what they’re reading and if you’re copying other websites/content or if your reviews are brushing though subjects with no substantiated material, you will most definitely fail before you even begin. If you can get your readers to relate to your content, then sky is the limit.

 

How does an audience relate though? Is the website content enough?

With the popularity of online affiliation and the obvious crazy rewards one can gain from it, there are so many websites offering the same information that it kind of stopped readers from clicking on specific links and becoming converting customers for forex brokers. Reason being that a trader/reader that trusts the content of specific websites, he/she has more than one option bookmarked on the browser and bounces in between.

So putting down the hours, making the effort to collect affiliate links is definitely a way to start, but should you only rely only on that? Most definitely not. Affiliates today are a lot more interactive with their audience, a very necessary added-value action, in order to keep reminding people that “hey, we’re still here, we’re providing very relevant content, please stick with us and all will be well”.

If no interaction takes place, these readers/followers/potential income will be devoured by the options and possibilities the internet bombards them with and you can slowly-slowly say goodbye to your future as a top performing forex affiliate.

 

So how does a forex affiliate website become more “interactive”?

First stop – emails

To begin with there’s the email blasting option. With every visit to your website, you start collecting emails. You can never have enough emails, so the more the merrier.

Be very careful of GDPR regulations though as it can be a huge downside to your operation, if people keep receiving email blasts they did not ask or sign up for.

If the target is to gain an email with each visit, then you need to offer back something of value that the visitor will be willing to exchange an email for. Not much is of value nowadays, free stuff, e-books and unnecessary gadgets are all over the place, so you need to make sure it’s different, it adds value and most importantly it’s needed, so that an uneventful exchange (getting that email) can take place.

Even if you just started and only collected 10 emails, you can start sending weekly your material and important information, to keep those 10 people engaged with your content. From there you just add-on to the list. A mistake many email blasters do is making it all about sales rather than added value content. And what do you know – people opt out of the “it’s ok to email me” conundrum they put themselves in.

 

Videos and live broadcasting

In the past, any image on your website would do… you would just go through images on google, or even buy images from reseller websites and it was enough to make your website look good.

Then came real imaging, people wanting to see more of how your office looks, who’s your team etc a fact that helped a little with the decision making process of them buying your product.

Nowadays though, the stronger ally when it comes to interacting with an audience is live broadcasting and videos. They gained a lot in popularity given the abundance of website options that offer the same content, so what better than adding a voice and a face to the person reviewing or providing content?

It’s raw, it’s unfiltered, it’s mostly real, when people put themselves out there live or through a video and open up for comments – good and bad – and so it makes it hard for anyone to second guess if that website is genuine or not.

Same works in the world of forex affiliate marketing as well, with video reviews and commentary, trading webinars and live broadcasting of relevant information that keep the audience engaged with a specific website. It makes sense and most importantly, it works.

 

Specifics of a forex affiliate program

In order to understand the nature of an affiliate program, we need to see the options a broker normally provides and move on to the payout commission schemes. These options include:

  • Affiliate tracking link that tracks all your activity
  • Login access to a system that you can monitor all your affiliate activity
  • Landing pages, banners, videos, promotional material, e-books
  • Content that you can add to your website/emails relevant to your audience preferences
  • Highly trained and converting Sales team to handle your leads, with no language barriers
  • Fast on-boarding and verification procedures
  • Conversion, retention, customer care to ensure longer revenue stream from your traffic
  • Enough payment methods, so that your audience can deposit/withdraw hassle free

 

Forex affiliate commission plans

CPM – Cost per mille (cost per thousand impressions)

Back in the day, before brokers were aware of their options and also affiliates weren’t really looking into what kind of traffic they sent through, banner placements and display marketing was the way to go. So if you had a high traffic website, all you needed to do is place a banner of a forex broker and display it on a daily basis adjacent to your content.

Every 1,000 impressions (times the banner was displayed) your affiliate account would be topped up with the pre-agreed amount. Combined with the “branding” hype, with marketers selling the idea of giving your forex broker substance through consistent messaging, colours and content, all brokers cared about was getting their message out there, on as many websites as possible and at any cost, in order to increase their chances of getting more leads.

We can see where this went wrong though, with the saturation of the market, the retail prospects decreasing in numbers, trading conditions getting harder in regulated jurisdictions and the consolidation of the forex industry leaving little room for “branding tactics”, deals quickly turned into “higher payouts for definite client acquisition”, period.

 

CPL – Cost per lead

Now this program doesn’t pay as much as the next one (CPA) but it’s also a great option to consider, if brokers are willing to offer it to you. Leads today are funnelled like dirty laundry, with lists being sold and processed so many times, that we lost any respect to who we’re talking/harass on a daily basis.

So for a forex broker to offer this program, you must prove that you have the relevant audience that has high chances of converting otherwise they will quickly switch your program to a CPA model. Your website might send 1,000 leads with no relevance to forex trading, which means extremely low converting and even then, excess work from the sales team and follow ups to turn this low conversion into fruitful active accounts.

There are cases though that, a CPL deal can be struck as part of a CPA program, where the broker will pay for the lead if it passed through complete registration and verification procedures. So even though the lead did not become a depositing active client or trader, the affiliate still gets the amount owed for sending through a qualified lead. Of course as already mentioned, the broker might want to combine this with another model (like the CPA model below) as part of a series of actions (lead, registration, verification, deposit, active trading) that will result in a good profit.

 

CPA – Cost per Acquisition

Although this program offers higher revenues (up to $1,000 in some cases), it’s important to distinguish between a high converting sales team that will manage to increase the potential of your traffic, from one that will use aggressive sales tactics, make false promises of profits or even offer investment advice (when they can’t even recognise the relationship between leverage and margin). This normally results in burned accounts, with you to thank/blame for promoting that broker.

Especially if you are a high traffic website, the return on the decision of which affiliate you partner up with, will depend not only by the size of the broker but also on how they handle backend operations like a good conversion team, fast on-boarding, hassle free trading, efficient deposit and withdrawal functions etc.

Usually CPA payout depends on client depositing and trading an agreed number of standard lots.

 

Revenue Share

With STP (Straight Through Process) brokers gaining momentum and traders demanding a more “clear” relationship with the broker similar to an ECN trading environment, the broker cannot pay a CPA commission that can compete with those large lump sums offered by a market maker.

Also in demand by affiliates, that wish their audience to get the best possible trading experience, instead of a CPA commission, they accept to receive a revenue share based on the earnings the forex broker made from that traffic. This of course translates to a per lot arrangement (usually $5-$10 per lot) for as long as the traffic trades with the broker.

 

Hybrid programs (CPA + Revenue Share)

Competition of course does not leave room for “absolute” programs, and it’s common practice for deals to take the form of a hybrid, combining the benefits of at least two worlds (usually the CPA world and the Revenue Share world).

With this program, the broker accepts to pay the forex affiliate a cost on activating the client (opening an account and the agreed traded number of lots) as well as a percentage on life time revenue derived from the trades.

Again, these deals usually go to high traffic, relevant to the forex market websites that are able to constantly produce and leave the forex broker with a profitable scenario. So even when the broker pays more due to the CPA arrangement and doesn’t make enough profit from trades, the overall traffic the forex affiliate produces allows a “margin for error”.

 

2nd tier programs

Affiliates that refer other forex affiliates are also a common program (like an offline master forex IB that promotes other IBs) with smaller percentages of course but, if a high traffic affiliate deal is struck the overall payout can actually be quite high.

 

Should you become a forex affiliate?

Of course you should and anyone that tells you the opposite doesn’t know right from left. But just by making a decision to go ahead it doesn’t mean you’ll succeed and create a profitable business.

Creating a website that places you in the heart of the forex industry, with updated and relevant content, that gives you a credible and sound voice, a good source that engages returning visitors, all these are time consuming, require the efforts of a foot soldier and the stamina of a marathon runner.

Yes, the payout is great and yes it can be done by anyone but if it’s for everyone… well that’s a story only you can tell by the end of it…

 

If you found this information useful, you might also like:

Understanding the nature of a Forex IB

Forex White Label – should you go for it?

What is a Tied Agent | Definitions and requirements  


About allFX-Consult:

allFX-Consult is a boutique forex consulting agency, catering to quality rather than quantity. For over a decade, our Directors have been connecting with some of the best individuals/professionals, service providers and brokers the industry has to offer so that we can meet any corporate forex challenge that comes our way.

allFX-Consult always has a counterpart/partner for any corporate structure. Before introductions/connections take place, we thoroughly examine all possibilities.

We’re chosen for being discreet, detail oriented and deadline driven.

Contact us for a private conversation to discuss any forex related topic through the contact form or one of our emails at info@allfx–consult.compartners@allfx-consult.com. We specialise in training sales teams and forex corporate structures for individuals that want to Start a Forex Brokerage.

 

St Vincent and the Grenadines forex broker

 


 

In November of 2012, the St Vincent and the Grenadines FSA (Financial Services Authority) was established to control the island‘s financial industry, as demand for registrations and company incorporations was increasing drastically. As always, not far behind followed a good number of companies looking into becoming a St Vincent and the Grenadines forex broker.

It’s important to take into consideration, that although the name FSA in most jurisdictions actually means supervision, regulation, fines, reporting, audits etc, in St Vincent and the Grenadines, forex activity still remains unsupervised and for all intends and purposes, unregulated.

By registering a company as a St Vincent and the Grenadines forex broker, by no means does it imply regulation and the FSA itself warns everyone to be cautious of forex trading websites and forex brokers that claim to be “regulated” under their authority.

 

Firstly, to answer the most frequently asked questions we receive:
  • Local office and employees are not a requirement
  • There is no capital requirement since there is no regulation
  • Important – you cannot open a bank account as a forex brokerage (more about this below)

 

So how does someone become a St Vincent and the Grenadines forex broker?

Straight forward process of collecting/submitting documents and incorporating a company. Once everything is done, the broker can proceed with bank arrangements (extremely hard if not impossible), systems and overall operations setup.

The documents required for incorporation are:

  • Signed application
  • Notarised copy of Passport
  • Notarised government Utility Bill (water, electricity – not older than 3 months)
  • Bank reference letters for Shareholder(s) and Directors (if available)

 

Looking to incorporate a company in St Vincent & the Grenadines? Contact us to look into the details

 

Information on the corporate structure of a St Vincent and the Grenadines forex broker

At least one shareholder and at least one director are required. The company can be up and running with a wide range of types of shares including registered or bearer shares, voting shares, non-voting shares, shares which may have less than 1 vote per share, common shares, preferred shares, limited shares, shares limited by guarantee or redeemable shares, and shares which entitle participation only in certain assets. The company must maintain a registered office and a secretary and there is excellent privacy control with regards to publicising the names of the shareholders and directors. The company can manage the business from anywhere in the world, no annual external audit requirements and this is basically it.

Most cases we come across that look into becoming a St Vincent and the Grenadines forex broker, are Institutional businesses/networks that operate through a forex IB or White Label program, as a pre-step before moving forward into more complex and expensive alternatives. Remember though that to start your own brokerage, requires more than an incorporated company or regulation, like banking, psp’s and solid sales/marketing plans.

 

Why register as a St Vincent and the Grenadines forex broker?

Some key characteristics of a St Vincent and the Grenadines forex broker include but are not limited to the very low costs and fast set up compared to most regulated jurisdictions, no limits on share capital (a company can start with $1), exemptions from corporate taxes, income taxes, capital gains, no annual reports, no limitations with physical offices and employees.

Although all of the above are such great conditions for the forex brokerage, it can mean doomsday and hellish conditions for traders that fall victims to a few, not so straight forward unregulated entities.

That being said, we want to make sure that we balance the scales a little bit. Most review websites that pretend to be a forex trader’s best friend warn caution, run disclaimer campaigns, raise massive red flags about trading with forex brokers registered in offshore jurisdictions. In most cases, only because of the jurisdiction, a broker is instantly labelled as scam.

We need to be careful because there are quite a few brokers that don’t run chop shops but instead use these offshore registrations to reach milestones that will enable them to get licenses in more reputable jurisdictions in the near future. Many of today’s top brokers started the same way. Unregulated, in a sunny tropical location, with no office or employees, but a solid plan that led to growth, offices and licenses in more reputable jurisdictions.

 

Find out which brokers are registered in St Vincent today as well as the country’s latest economic data.

 

Just because an investor has the funds to pay the crazy costs of a reputable jurisdiction, by no means does it imply that he/she does not run a chop shop. No regulation can prevent misbehaviour in its entirety and if you are a serious industry player, you know that’s true. Yes, the regulated “big” brokers get fines, warnings, extra hassle in reporting, massive costs and guidelines to work with but does this stop them from running clandestine dealing rooms and iffy risk management? Anyone who thinks this is the case is up for small, big, explosive hiccups in their forex trading experience.

To summarise this, some of these offshore companies are so small, that you don’t even speak with a sales person. You go direct through the owner or director and the relationships you can establish with them, are far more serious/important than dealing with an employee of a heavily regulated company.

All we’re saying is traders must do their due diligence while being extremely cautious, as not everyone is into forex activities to grow a proper business. Knowing who you’re dealing with is a must before depositing funds. That being said – you never know, these “offshore” invisible brokers might actually surprise you.

 

Time frames to get registered:

For all intends and purposes, with the submission of all documents you can be up and running in less than a week. Cautious reminder though – don’t register a company for forex activities before you look into your banking possibilities. If you already did though and you’re stuck, contact us now to examine what to do next.

 


 

How allFX-Consult can step into this picture:

allFX-Consult is a boutique forex consulting agency, catering to quality rather than quantity. For over a decade, our Directors have been connecting with some of the best individuals/professionals, service providers and brokers the industry has to offer so that we can meet any forex corporate challenge.

Because of this, allFX-Consult always has a counterpart/partner for any corporate structure. Before we make any recommendations, we thoroughly examine all possibilities. We’re chosen for being discreet, detail oriented and deadline driven.

Contact us for a private conversation to discuss your case through the contact form or one of our emails at info@allfx–consult.com, partners@allfx-consult.com.

#forexlicense #offshorelicense #stvincentforexbroker #forexib #whitelabel

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Top EU and Offshore jurisdictions | Including brokers registered there & the country’s economic data 

Comprehensive list of worldwide regulators and supervising bodies

Vanuatu Forex License


 

An excellent alternative to set up a brokerage operation, is under a Vanuatu Forex License. Regulated and supervised by the Vanuatu Financial Services Commission (VFSC), the license gained a lot of respect and interest in recent years mainly due to the low operational cost, more lenient requirements and tax incentives.

The Securities Dealer license application can be prepared and submitted by an international company or individual that must be a Director/officer of the company.

Before moving ahead, it is important to note here that Vanuatu along with Iraq have been commended by the Financial Action Task Force (FATF), the international organisation that lists countries with inefficient measures to combat money laundering, for their efforts to ensure that their framework is strong enough and relevant to current AML/CFT requirements. As a result, in June of 2019, Vanuatu was removed from the FATF Grey List.

 

Firstly, to answer the most frequently asked questions we receive regarding a Vanuatu Forex License:
  • Local office (after the amendment act of 2018) is a requirement. The office must maintain software for filing, management and accounting, a business continuity system and server.
  • No capital requirements – instead the law requires brokerages to hold a securities bond of $50,000.

 

So how does someone start the process to obtain a Vanuatu Forex License?

Through a comparatively fast procedure, the company is required to register a Vanuatu company, prepare and submit for evaluation all documents pertaining to its ID and activities (current and past activities), a detailed business plan, an AML manual as well as a corporate bank account.

Find out which brokers are registered in Vanuatu today as well as the country’s latest economic data.

 

In this regard, the documents required are:

  • Notarised copy of Passport
  • Recent notarised government Utility Bill (water, electricity – no older than 3 months)
  • Criminal record
  • CV and reference letters for Shareholder(s) and Directors
  • Bank statement not older than 3 months, confirming the where the funding is coming from
  • A certified copy of Academic qualifications (true copy stamp from the university/college is enough) for Shareholder(s) and Directors

Important note: The documents must be in the English language – if they can’t be provided in their original form in English, a notarised English translation must be sent as well.

 

Looking to obtain a Vanuatu Forex License? Contact us to look into the details

 

Information on the corporate structure requirements of a Vanuatu Forex License

The Shareholder of the company can be a legal person, unlike the minimum of 1 Director (that must be pre-approved by the VFSC) and appointed on the board. The Shareholder(s) and Director(s) must have proper backgrounds and experience and their approval is at the discretion of the regulator. The Shareholder(s) and Directors are not required to be residents of Vanuatu.

The Director(s) must have a minimum of 5 years’ experience (proved by the reference letters needed to accompany the application) and shall reside for 6 months of a calendar year in Vanuatu. There must be an AML officer approved and appointed as well as a procedure in place that specifies the officer’s replacement.

Quick note here, it’s also common practice under MiFID2 where brokers are required to maintain a replacement policy for all the key personnel of the company, to avoid any setbacks in their duties due to resignations/removals.

Recent changes

After announcements on guidelines, changes and updates on the conduct of business of forex brokers (that came into effect on January 1st, 2019), a more clear understanding of reasons for possible application rejection or license revocation is set, minimum professional indemnity insurance for partners, employees and consultants, financial statements are required to be prepared by an independent auditor that is approved by the Commissioner 3 months after the end of the year.

Moreover, the amendment introduces the new classification system that obligates applicants to choose between Class A, B and C Principal’s license, depending on the activities the broker intends to conduct. This classification will further support the VFSC in its supervising duties and control.

Here is the full Amendment Act of 2018

 

Why a Vanuatu Forex License?

Some key characteristics of the Vanuatu Forex License include but are not limited to the very low costs compared to most regulated jurisdictions, the recognition it receives on an international level for its efforts in combating money laundering (important if later the broker will apply for a license with another jurisdiction), the swift adaptation in controlling and supervising uninterrupted relative to the increase in demand for its forex licenses, the favourable tax conditions (no tax on profit or capital gains).

If you have Institutional business as a network and operate through a forex IB or White Label program, jurisdictions like Vanuatu are a great option to start your own brokerage, before moving forward into more complex and expensive alternatives. Unlike working unregulated, Vanuatu will provide comfort to your clients who need a regulated broker to support their trading needs.

 

Time frames to get the license:

Although people/offices will try to convince you that they can get your setup up and running within 4 months (or less), we will refrain from making any promises since it’s in the discretion of the national regulator to approve, ask questions or even reject any application depending on its complexity and structure. Usually our initial internal assessments are enough to identify problems (if any) in the early stages, thus maintaining excellent time frames.

 


 

How allFX-Consult can step into this picture:

allFX-Consult is a boutique forex consulting agency, catering to quality rather than quantity. For over a decade, our Directors have been connecting with some of the best individuals/professionals, service providers and brokers the industry has to offer so that we can meet any forex corporate challenge.

Because of this, allFX-Consult always has a counterpart/partner for any corporate structure. Before we make any recommendations, we thoroughly examine all possibilities. We’re chosen for being discreet, detail oriented and deadline driven.

Contact us for a private conversation to discuss your case through the contact form or one of our emails at info@allfx–consult.com, partners@allfx-consult.com.

#forexlicense #offshorelicense #vanuatuforexlicense #forexib #whitelabel

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Labuan Forex License | Definitions and application requirements

 

The Labuan Forex License gained a lot of respect after the very recent changes in the regulatory regime of more reputable jurisdictions, just like our very own European MiFID ii, which made it inevitable for forex brokers to look into other possibilities to rest their brokerage operations.

Supervised by the Financial Services Authority (Labuan FSA), the arm of the Labuan International Business and Financial Centre (IBFC), a money broking license allows a Forex Broker to operate uninterrupted within a low tax regime, limited restrictions in the corporate structure and a relatively quick setup (relative to the complexity of each case and compared with other jurisdictions).

 

Firstly, to answer the most frequently asked questions we receive regarding a Labuan Forex License:
  • Local office and employees are a requirement
  • The capital requirements of RM500,000 (approx. $125,000) can be used as operating capital

 

So how does someone start the process to obtain a Labuan Forex License?

Same as with most licenses, the process starts by collecting/submitting documents. After receiving conditional approval by the Labuan FSA, the capital requirements as well as the office set up must be arranged.

Find out which brokers are registered in Malaysia today as well as the country’s latest economic data.

 

In this regard, the documents required are more or less the same:

  • Notarised copy of Passport
  • Recent government Utility Bill (water, electricity – no older than 3 months)
  • Reference letters for Shareholder(s) and Directors from a Bank and a CPA
  • Bank statement not older than 3 months, confirming the funds required for the capital requirements (RM 500,000 equivalent to approximately $125,000)
  • A certified copy of Academic qualifications (true copy stamp from the university/college is enough) for Shareholder(s) and Directors

Important note: The documents must be in the English language – if they can’t be provided in their original form in English, a notarized English translation must be sent as well.

 

Looking to obtain a Labuan Forex License? Contact us to look into the details

 

Information on the corporate structure requirements of a Labuan Forex License

The Shareholder of the company can be a legal person, unlike the minimum 2 Directors (that must be pre-approved by the Labuan FSA) and appointed on the board. The 2 Directors must have proper backgrounds and experience and their approval is at the discretion of the regulator. The Shareholder(s) and Directors are not required to be residents of Malaysia. There are also no restrictions to where the board holds its meetings although the minutes must be signed by a resident secretary.

An office with minimum annual expenditure of $20,000 and 2 local employees is mandatory, as well as audited financial statements and the filing of annual and tax returns. A RM 5,000 (approx. $1,500) yearly license renewal fee is due before the 15th of January of the next year.

The Labuan FSA offers a very discreet and private environment for licensed entities, allowing for strict confidentiality and no public disclosures of the beneficial owner’s info.

 

Recent Changes

After announcements on guidelines, changes and updates on the conduct of business of forex brokers (that came into effect on January 1st, 2018), an approval from the authorities of countries intended to do business in, became mandatory. The Labuan FSA will require this before allowing the broker to commence operations. Transactions in the Malaysian Ringgit are prohibited as well as soliciting Malaysian residents. There are margin requirements and leverage restrictions (although not as bad as Europe and US) that are capped depending on the experience of the trader. Segregated client accounts, time frames for client withdrawals, a detailed business plan and compliance with the AML/CFT Act on money laundering issued by the Central Bank of Malaysia (CBM) are part of the mandatory supervised operations.

Link to the guidelines

 

Why a Labuan Forex License?

Some key characteristics of the Labuan Forex License include but are not limited to the very low costs compared to most regulated jurisdictions, the stability of Malaysia’s political environment, its strategic location relative to potential target countries as it shares the same time zone with major Asian countries like China, Hong Kong, parts of Russia & Indonesia, Philippines and also a small 1 hour difference with parts of Russia, Indonesia, Cambodia, Laos, Bangladesh, Japan, South Korea, Thailand, Myanmar, Vietnam.

If you have Institutional business as a network and operate through a forex IB or White Label program, jurisdictions like Malaysia are a great option to start your own brokerage, before moving forward into more complex and expensive alternatives. Unlike working unregulated, a Labuan license will provide comfort to your clients who need a regulated broker to support their trading needs.

 

Time frames to get the license:

Although people/offices will try to convince you that they can get your setup up and running within 4 months (or less), we will refrain from making any promises since it’s in the discretion of the national regulator to approve, ask questions or even reject any application depending on its complexity and structure. Usually our initial internal assessments are enough to identify problems (if any) in the early stages, thus maintaining excellent time frames.

 


 

How allFX-Consult can step into this picture:

allFX-Consult is a boutique forex consulting agency, catering to quality rather than quantity. For over a decade, our Directors have been connecting with some of the best individuals/professionals, service providers and brokers the industry has to offer so that we can meet any forex corporate challenge.

Because of this, allFX-Consult always has a counterpart/partner for any corporate structure. Before we make any recommendations, we thoroughly examine all possibilities. We’re chosen for being discreet, detail oriented and deadline driven.

Contact us for a private conversation to discuss your case through the contact form or one of our emails at info@allfx–consult.compartners@allfx-consult.com.

#forexlicense #offshorelicense #labuanforexlicense #forexib #whitelabel

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Understanding the nature of a Forex IB

Tied agent | Definitions and registration requirements

 


 

What is a Tied Agent?

A Tied Agent is a person (natural or legal) established in a Member State, who, acting under the full and unconditional responsibility of only one Investment Firm (the “IF”) of a Member State, on whose behalf it acts, promotes investment or/and ancillary services, attracts Clients or prospective Clients, receives and transmits Client orders in respect of investment services or financial instruments, places financial instruments or/and provides advice to Clients or prospective Clients in respect of those financial instruments or services.

 

We are copying below Article 29 of MiFID2 regarding Tied Agents, directly from the ESMA website (link provided below):
  1. Member States shall allow an investment firm to appoint tied agents for the purposes of promoting the services of the investment firm, soliciting business or receiving orders from clients or potential clients and transmitting them, placing financial instruments and providing advice in respect of such financial instruments and services offered by that investment firm.
  2. Member States shall require that where an investment firm decides to appoint a tied agent it remains fully and unconditionally responsible for any action or omission on the part of the tied agent when acting on behalf of the investment firm. Member States shall require the investment firm to ensure that a tied agent discloses the capacity in which he is acting and the investment firm which he is representing when contacting or before dealing with any client or potential client.
  3. Member States may allow, in accordance with Article 16(6), (8) and (9), tied agents registered in their territory to hold money and/or financial instruments of clients on behalf and under the full responsibility of the investment firm for which they are acting within their territory or, in the case of a cross border operation, in the territory of a Member State which allows a tied agent to hold client money.
  4. Member States shall require the investment firms to monitor the activities of their tied agents so as to ensure that they continue to comply with this Directive when acting through tied agents.
  5. Tied agents shall be registered in the public register in the Member State where they are established. ESMA shall publish on its website references or hyperlinks to the public registers established under this Article by the Member States that decide to allow investment firms to appoint tied agents.
  6. Member States shall ensure that tied agents are only admitted to the public register if it has been established that they are of sufficiently good repute and that they possess the appropriate general, commercial and professional knowledge and competence so as to be able to deliver the investment service or ancillary service and to communicate accurately all relevant information regarding the proposed service to the client or potential client.
  7. Member States may decide that, subject to appropriate control, investment firms can verify whether the tied agents which they have appointed are of sufficiently good repute and possess the knowledge and competence referred to in the second subparagraph.
  8. The register shall be updated on a regular basis. It shall be publicly available for consultation.
  9. Member States shall require that investment firms appointing tied agents take adequate measures in order to avoid any negative impact that the activities of the tied agent not covered by the scope of this Directive could have on the activities carried out by the tied agent on behalf of the investment firm.
  10. Member States may allow competent authorities to collaborate with investment firms and credit institutions, their associations and other entities in registering tied agents and in monitoring compliance of tied agents with the requirements of paragraph 3. In particular, tied agents may be registered by an investment firm, credit institution or their associations and other entities under the supervision of the competent authority.
  11. Member States shall require that investment firms appoint only tied agents entered in the public registers referred to in paragraph 3.
  12. Member States may adopt or retain provisions that are more stringent than those set out in this Article or add further requirements for tied agents registered within their jurisdiction.

 

See the complete article directly on the ESMA website.

 

Should you become a tied agent?

To answer this question, like with any evaluation on what to do next or how to get bigger, we need to examine your current standing and if tying your business to a regulated Investment Firm is needed at this stage. Maybe you are a White Label or large forex IB that has prospective business in the EU and needs a “vehicle” to enter legally. Most would think that the only way is through a full license, but maybe you’re not ready to take on such costs and compliance demands. Or maybe you tried to get regulated and found difficulties to be approved or even worse, got rejected and you need to identify plausible and feasible next steps.

 

Do any of the above scenarios describe your current status? Contact us now to look into the details

 

If your business is ready to enter the EU area, no matter the reasoning, becoming a tied agent requires minimal cost, hassle free registration process and it’s a great stepping stone, to evaluate if it’s worth it to go for a full EU license on your own. It will support your reputation, build your brand’s name, give you credibility with PSPs and banking institutions and create history for future use with a regulator (if you decide later to apply for a full license).

 

You need to take into consideration that operating as a Tied Agent under MiFID2, means you are obliged to offer trading conditions as a European regulated broker. The marketing and sales plans, the client protection, the tight trading conditions are only part of the regime, so it would be wise to have a solid plan and a European client base (or a prospective European business) before looking into such a concept. Its important to note that no EU regulated broker will accept to connect/tie their business if it doesn’t make sense – not only compliance wise (to have a clear standing with your operations) but also relative to the income you will produce with them.

 

What is the process to become a Tied Agent?

Firstly you will seek registration with the national regulator to be appointed as a Tied Agent of a specific Investment Firm and be registered in the Register of Tied Agents.

Check out CySEC’s register of Tied Agents here 

 

Some of the details you will provide in this regard will include the following (The complete list of needed documents will be provided on a case by case basis and depending on the status of the company applying to become a Tied Agent):

  • Name of the Tied Agent and/or Trading name(s)
  • Notarised company documents and contact information
  • Your agreement with the Investment Firm with estimated revenues
  • Personal questionnaires and documentation for shareholders, directors and employees of the Tied Agent who will provide Investment Services

 

It’s then in the discretion of the national regulator to ask further questions, documents and clarifications. It’s usually a fast procedure, taking just a few months to finalise but if your operations fit in this scenario, it’s definitely worth taking it into consideration. As a Tied Agent, you will learn a lot about the EU target audience, the EU regulatory framework and if it makes sense to invest and get a full license of your own.

 

What does it cost to apply for a Tied Agent registration?

Firstly you need to find the Investment Firm willing to tie itself with your operations. Not all licensed brokers will want to do this, especially if they don’t have enough information regarding who they are tying with and that this new partnership, will not jeopardise/burn their license.

Looking for an EU licensed broker to tie your operations with? Talk with one of our partners today

 

So it is typical that exchange of information will take place, several calls and meetings before any actual numbers/costs are brought forward and reviewed. When it’s all said and done, the cost for the application to the regulator is quite small and can be handled through our office. From experience, what matters the most is the final arrangement on profit share that depending on the size of the licensed broker, can vary significantly. It would be irresponsible to throw random percentages of profit sharing, because each case is different.

 

Lastly, the Tied agent will need to employ a Head of Reception and Transmission that needs to be a certified professional (in the case of Cyprus, the employee needs to be registered in CySEC’s Public Register of Certified Persons (the “Public Register”) which has a salary cost as well as a small application cost, for the regulator to approve the person.

 

How allFX-Consult can step into this picture:

allFX-Consult has done extensive research on the topic and brokered quite a few deals concerning Tied Agents. In many cases, we recommended alternative solutions/partnerships because as mentioned above, not all cases fit the scenario of a Tied Agent. Some cases were ready for a full license and therefore were handled as such. Some others required simpler structures/partnerships/compromises, used as milestones to reach future long term licensing goals.

Our process is simple – we will examine each case separately and provide realistic recommendations based on our findings. All deals brokered by allFX-Consult, eventually resulted in obtaining a full license (either in Cyprus or abroad) or remained successful partnerships (Tied Agent partnerships or other) that to-date benefit all parties involved.


 

About allFX-Consult:

allFX-Consult is a boutique forex consulting agency, catering to quality rather than quantity. For over a decade, our Directors have been connecting with some of the best individuals/professionals, service providers and brokers the industry has to offer so that we can meet any corporate forex challenge that comes our way.

allFX-Consult always has a counterpart/partner for any corporate structure. Before introductions/connections take place, we thoroughly examine all possibilities.

Contact us for a private conversation to discuss any forex related topic through the contact form or one of our emails at info@allfx–consult.compartners@allfx-consult.com. We specialise in training sales teams and forex corporate structures for individuals that want to Start a Forex Brokerage.

#tiedagent #forextiedagent #forexlicense #offshorelicense #euforexlicense #forexib #whitelabel

 

Useful links

Check our comprehensive list of worldwide supervising authority bodies (includes all member states of the EU)

What are the application requirements for a CySEC license?

Cyprus Forex Brokers – comprehensive list of CySEC regulated brokers and country stats