With the recent changes to St Vincent licensing, what will the future trends be for licensing in 2023?

Guest Editorial for Finance Feeds by Chris Rowe, Director of Financial technology Consultancy Services Ltd.

So, it came as somewhat of a shock for those brokerages regulated in St Vincent and the Grenadines (SVG) that not only is there going to be substantial changes to how FX brokers are going to be regulated in this jurisdiction, but also the amount of time allowed in order to adapt to making these changes.  What is clear going forward is that the SVG regulator clearly only wants the larger FX brokers that are already CYSEC, FCA or ASIC regulated.  For many SVG regulated brokers who are also regulated elsewhere, this is purely a paper exercise, but for brokerages that are only regulated in SVG this is now becoming a major issue.

The SVG regulator has been clever in its approach.  By stipulating that a broker would now need to be regulated in a separate jurisdiction, they have opened SVG up as an offshore licence for anyone with an existing FCA, CYSEC or ASIC licence.  It is highly unlikely that a broker is going to be regulated in two offshore licences without having a primary licence.  For those who only have an SVG licence then the hunt is on for a new jurisdiction that can be obtained quickly.

So, if SVG is not the answer, where should brokers look next?  For an offshore licence then the obvious choices are Mauritius, Seychelles, Labuan or the Bahamas.   Vanuatu is now also upping its requirements to get better credibility but would not yet seem to be on a level playing field with SVG.  All of these licences can be applied for relatively quickly, unlike the primary licences of ASIC, FCA and CYSEC, and should therefore be considered by anyone looking to replace their existing SVG licence.

What of the future?  My predictions for 2023 are that licencing, and regulation will become more important, and it will continue to become even harder to get a licence.  Even Vanuatu is now requiring more in terms of a licence application.  Banking for brokerages is also getting harder.  Even before the recent SVG announcement, it was virtually impossible to get the banking required for the licence, with the only solution seeming to be to have an account linked to your FCA (or ASIC / CYSEC) account.  Brokerages will continue to want to be regulated in multiple jurisdictions so that they can offer their clients piece of mind, knowing that they are trading with a brokerage that has got an FCA licence, but yet still need to offer the offshore licence so that their clients can get the leverage that they require.

For those brokerages that are already regulated in St Vincent action needs to be taken now to make sure that you are still compliant by the stipulated cut off date in March 2023.  If St Vincent is your only licence, then this licence will no longer apply past that date.  The best option is to look for alternatives and find a suitable expert who can guide you through the process of obtaining a new licence.

Copied from the FSA website:

UNLICENSED FOREX/BINARY OPTIONS

February 3, 2022

The Financial Services Authority (FSA) wishes to advise the General Public to proceed with caution when approaching or being approached by any person or representative of a business entity who may be offering forex trading and/or brokerage or binary options. Before entering into any business arrangement or contract with such person or business entity, you are advised to verify that the service being offered has been properly approved and licensed by the relevant licensing authority.  

Please be advised that forex trading brokerage activities are not licensed in St. Vincent and the Grenadines. While registered St. Vincent and the Grenadines Business Companies (BCs) or Limited Liability Companies (LLCs) are able to engage in any legal activity, if they engage in forex trading and brokerage, they are doing so without a licence from this jurisdiction. 

Until such time that appropriate legislation is put in place to address Forex activities, there is no legal prohibition against a BC or LLC carrying out that activity or from so stating in its Articles of Incorporation or Articles of Formation. It is however fully expected that the BC or LLC would obtain the appropriate licence to conduct such business in the jurisdiction where the activity occurs, notwithstanding that its incorporation or registration is in St. Vincent and the Grenadines.

Potential investors must be aware that if an entity is unlicensed and unregulated, they will be using its services at their own risk. Unregulated Forex Trading and/or Brokerage or binary options entities may not be subject to any code of practice or other regulatory law anywhere that expressly prohibits the business from making statements that are misleading, false or deceptive. Neither are their owners, directors and managers subject to the “fit and proper” test applied by financial regulatory authorities, such as the FSA.

Financial Services Authority
February 3^rd, 2022