【Purpose of This Article】
This article introduces the features of financial licenses in the world to give the reader a reference in choosing a broker.
Trustability of Financial License
|Financial Conduct Authority (FCA)||United Kingdom||High|
|Cayman Islands Monetary Authority (CIMA)||Cayman Islands||High|
|Cyprus Securities and Exchange Commission (CySec)||Cyprus||High|
|Financial Markets Authority-New Zealand (FMA)||New Zealand||Average|
|Australian Securities & Investments Commissions (ASIC)||Australia||Average|
|International Financial Commission Belize (IFSC)||Belize||Low|
|St. Vincent & the Grenadines The Financial Services Authority (SV)||Saint Vincent and the Grenadine||Low|
|Vanuatu Financial Service Commission (VFSC)||Republic of Vanuatu||Low|
- Brokers authorized by a highly trustable finance license have a system of protecting investors and are suitable for traders with large amounts of money.
- Even if a broker is authorized by a less trustable license such as IFSC and SV, it can appeal themselves as an offshore broker which provides the lower commission and bonuses. Such a broker is suitable for traders who want to have a chance to make a lot of money with a small amount of margin (Instead, it carries a high degree of risk).
Many successful traders adjust their trading style to the characteristics of each license. Allocating your money to multiple brokers enables you to manage the risk*. I hope this article would be helpful to you when choosing a broker and establishing your trading style.
The applicable license depends on the trader's country of residence. In the case of HotForex, a trader residing in Malaysia will open an account with HF Markets (SV) Ltd, which is authorized by the SV license, while a trader residing in Germany will open an account with HF Markets (Europe) Ltd, which is authorized by the CySec license. It is not possible for traders residing in the area covered by SV-licensed HF Markets (SV) Ltd to open an account with CySec-licensed HF Markets (Europe) Ltd.
Asia :HF Markets (SV) Ltd
Europe : HF Markets (Europe) Ltd
As a side note, if you live in a country governed by SV but want to trade under a highly trusted license, we recommend the CIMA-licensed Tradeview, which is available almost worldwide and has a very high level of trust. Additionally, their spread costs are the lowest in the industry (ILC account) and they have a good investor protection system. For details, please visit their official website.
- 1 What Is Financial License?
- 2 Financial Conduct Authority, United Kingdom (FCA)
- 3 Cayman Islands Monetary Authority (CIMA)
- 4 Cyprus Securities and Exchange Commission (CySec)
- 5 International Financial Services Commission (IFSC)
- 6 Seychelles Financial Service Authority (FSA)
- 7 Australian Securities & Investments Commissions (ASIC)
- 8 Financial Markets Authority-New Zealand (FMA)
- 9 St. Vincent & the Grenadines The Financial Services Authority (SV)
- 10 Vanuatu Financial Service Commission (VFSC)
What Is Financial License?
A financial license is a permit required to operate a financial business including FX and is issued by each country to financial institutions operating in its country. There is a rating (degree of rigidity of regulation) for financial licenses. It also plays a role in a standard to measure the trustability of a broker because a firm holding a highly regulated license can be expected to have sound operations in terms of business conditions and investor protection.
Financial Conduct Authority, United Kingdom (FCA)
|Official Name||Financial Conduct Authority|
|Trustability||High (the world's most rigorous financial monitoring agency)|
Along with Wall Street in New York, London is well-known as the city where the world's financial institutions are operating. FCA plays a role as a financial watchdog in the UK.
Feature 1: The world's most rigorous screening criteria
To obtain the FCA license, a broker must meet various criteria such as the below and pass an annual audit to renew the license.
- Capital stock
- Asset management for traders
- Support system for traders
- External audit
- Deposit and withdrawal processes in an expeditious way
As there are only a limited number of financial institutions that hold this rigorous license, they can be regarded as a trusted broker.
Feature 2: CASS (Client Assets Sourcebook)
FCA's provision stipulates that financial institutions shall return the deposited money to the customers promptly in the unexpected event of the failure of a financial institution. FCA prohibits them from using customer assets for their own account and stipulates the segregation of customer assets by requiring financial institutions to maintain records of the title of the customer assets, custody of funds, and all transactions.
Cayman Islands Monetary Authority (CIMA)
|Official Name||Cayman Islands Monetary Authority|
The Cayman Islands, a British Overseas Territory, are a group of small islands in the Caribbean Sea, south of the United States. The financial regulatory body is different from that of its mainland but follows British laws and regulations in principle.
When you think about the Cayman Islands, you may have an image that has nothing to do with finance. But in fact, this territory is very famous as one of the world's leading financial centers. About 80% of the world's major banks have branches there, and their total banking assets are 1.5 trillion dollars (the second largest in the world).
Features 1: Rigorous License Requirements
Brokers are required to ensure that the items that fall under the requirements are properly managed and administered to be authorized.
- Annual external audit
- Submission of proof of compliance
- Report on the status of internal fund management
- Monthly reporting of transaction details
- Submission of financial statements
Feature 2: Role as an Offshore Broker
CIMA is popular with offshore brokers, that is, unregulated brokers that allow them to open investment accounts outside of their original country's jurisdiction. They pay an annual license fee and in return are not subject to any taxes on profits earned outside the Cayman Islands. This factor enables Tradeview, a CIMA licensed broker, to have by far the lowest spread costs compared to its competitors (*).
There are concerns that offshore markets can be used for money laundering or as tax havens. But CIMA has taken all possible measures to prevent them. It draws a line from other offshore licenses.
【(*) Supplementary Information on Tradeview's Investor Protection】
Although it is outside the CIMA requirements, Tradeview has an extended warranty system. Their clients’ funds are held separately from Tradeview's corporate funds. Additionally, they have entered into an agreement with FundAdministration, a leading trust agreement service for financial institutions, which acts as an external administrator to monitor Tradeview's client accounts.
Also, unlike other brokers, Tradeview has a compensation system as they guarantee up to USD 35,000 to their clients for precaution against bankruptcy triggered by the unexpected financial turmoil. Tradeview is a highly qualified FX broker with a highly trustable financial license and investor protection system.
Cyprus Securities and Exchange Commission (CySec)
|Official Name||Cyprus Securities and Exchange Commission|
|Authorized Broker||XM [Trading Point of Financial Instruments Ltd]|
Cyprus is a small island country located east of the Mediterranean Sea. The level of education is relatively high, and the country is famous for being an international financial hub as multiple brokers have a main office or branches there.
After Cyprus joined EU in 2004, the CySec-licensed brokers can operate in Europe under MiFiD. Like FCA, the CySec license is difficult for brokers to obtain and thus is well respected.
Feature 1: MiFiD
MiFiD, or Markets in Financial Instruments Directive, serves as the rule to comply with when conducting financial activities in the region of the EU, such as;
- Obligation to prevent conflicts of interest
- Clarification of investment business rules
- Ensuring the best execution
- Establishment of criteria for client classification (professional and general investors)
- Removal of the obligation to concentrate on a single exchange
It requires brokers to process client orders for the best possible outcome across all available trading windows. Beyond the narrow obligation to execute orders at the best possible price, the MiFiD includes several broader obligations, such as commission costs, speed of execution, the certainty of settlement, size of the trade, and client characteristics, which require brokers to act in the best possible interests of their clients.
Feature 2: CySec's Regulatory Contents
CySec mandates the following regulations to brokers.
- Provision of negative balance protection
- Completion of withdrawal processes by the following business day
- Membership in ICF
- Strict asset segregation
Feature 3: Mandatory membership in ICF
All financial institutions registered with CySec are required to register Investor Compensation Fund (ICF), which provides traders with compensation of up to €20,000 in the event of the failure of an ICF member financial institution.
International Financial Services Commission (IFSC)
|Official Name||International Financial Services Commission|
|Authorized Broker||XM [XM Global Limited]|
Belize is a country in northern Central America, facing the Caribbean Sea. Surrounded by beautiful coral reefs and the sea, the country is called "Jewel of the Caribbean". After the independence from the United Kingdom in 1981, tourism and finance are its main industries.
Features 1: Lax Regulation Compared to FCA and CySec
The IFSC regulations do not require a broker to have a head office in Belize nor to declare profits earned outside Belize. It is not perceived as a rigorous regulation, as the minimum amount of capital to obtain a license is lower than FCA and CySec, and other requirements are easier to achieve.
Features 2: Bonus Offering Is Allowed
Instead of laxer license requirements than FCA and CySec, IFSC allows brokers to offer the bonus and high leverage. The various bonus programs and the advantageous high leverage enable traders to have the opportunity to make a lot of money even with a small amount of margin (but it entails the risk).
For your information, XM (XM Global Limited) is authorized by IFSC and also provides a bonus program.
To learn more about XM's bonus program, please visit XM’s official website.
For details of the countries IFSC-licensed XM Global Limited covers, please refer to the following article.
IFCS has less stringent auditing and checking systems than high-class licenses. It may give a very good investment efficiency, but there are some concerns about investors’ protection. Therefore, many traders have multiple accounts with high-class licenses such as CIMA and offshore licenses such as IFSC to diversify their funds so that they can increase their investment efficiency and secure risk diversification.
Seychelles Financial Service Authority (FSA)
|Official Name||Seychelles Financial Service Authority|
Seychelles is made up of 115 island nations located off the coast of East Africa. Like Belize’s IFSC, FSA is regarded as an offshore license. Due to its tax-friendly features, brokers authorized by the FSA license excel at low spread costs and bonus programs.
Like IFSC, FSA is less rigorous than FCA and CIMA. It is recommended to diversify your funds and otherwise spread your risk when trading through an FSA-licensed broker.
Australian Securities & Investments Commissions (ASIC)
|Official Name||Australian Securities & Investments Commissions|
|Authorized Broker||XM [Trading Point of Financial Instruments Pty Ltd]|
Financial Markets Authority-New Zealand (FMA)
|Official Name||Financial Markets Authority-New Zealand|
New Zealand is an island nation located east of Australia. Previously, the New Zealand licensing was known for its very lax regulations, but since the establishment of the FMA in May 2011, the regulations have become more rigorous.
St. Vincent & the Grenadines The Financial Services Authority (SV)
|Official Name||St. Vincent & the Grenadines The Financial Services Authority|
|Authorized Broker||Hot Forex [HF Markets (SV) Ltd]|
St. Vincent and the Grenadines is located in the Lesser Antilles and consists of the volcanic island of St. Vincent and the coral reefs of the Grenadines. SV, established in 2012, is responsible for the supervision and regulation of financial institutions registered in the country.
Features 1: Lax Regulation Compared to FCA and CySec
It is not perceived as a rigorous regulation, as its licensing requirements are easier to achieve than those of the FCA or CySec.
Features 2: Bonus Offering Is Allowed
Similar to IFSC, SV allows brokers to offer bonus programs and high leverage. The various bonus programs and the advantageous high leverage enable traders to have the opportunity to make a lot of money even with a small amount of margin (but it entails the risk).
For your information, Hot Forex [HF Markets (SV) Ltd] is authorized by SV and also provides a bonus program.
To learn more about Hot Forex's bonus program, please visit Hot Forex’s official website and the following article.
SV, like IFSC, has less stringent auditing and checking systems than high-class licenses. SV gives a very good investment efficiency, but there are some concerns about investors’ protection. Therefore, many traders tend to have multiple accounts with high-class licenses such as CIMA and offshore licenses such as SV to diversify their funds so that they can increase their investment efficiency and secure risk diversification.
[Ref: CIMA-licensed brokers].
Features: Lowest spread cost in the industry (ILC account) and an excellent customer protection system.
Vanuatu Financial Service Commission (VFSC)
|Official Name||Vanuatu Financial Service Commission|
The Republic of Vanuatu is a small island nation in the South Pacific. It consists of about 80 islands and is known as a tax haven with no income tax or corporate tax. As VFSC is an offshore financial regulator, its trustability is low.
That concludes this article.
Thank you for sparing your time to read this article.