When starting a new Forex brokerage or an investment fund, a logical question arises — what is the best location to incorporate and license the future business.

I will conditionally divide the jurisdictions into several main categories, ranking them from Level One to Level Five. We will be taking into consideration the complexity and the time frame to obtain the license, as well as the cost and requirements relating to physical representation, reporting and reputation.

Before I briefly explain various options for incorporation, I would like to provide examples of some questions that a future Forex broker has to answer before making a decision about the registration. And what amount is the broker ready to spend on legal services?

Offshore Broker phenomenon: advantage in comparison with local broker

Depending on the answers to these questions, the following choices of jurisdictions should be considered. Keep in mind, however, that you are also accountable for the speed, efficiency and expeditiousness of your regulation process. Whether in a level one jurisdiction or a level five jurisdiction, all processes will go much smoother if you have all documentation properly prepared and timely submitted.

The faster you react and satisfy all requests, the faster your regulation will proceed. In the context of defending the citizens from fraud, many countries have established private or state organisations to regulate the Forex market. Generally, such organizations are actively supported by the government.

The examples of the countries with the most rigorous regulators include the USA CFTC, NFA and Japan FSA Japan. I refer to these jurisdictions as the regulators at the first level. If a broker plans to use the Dealing Desk model, which does not forward the deals to third parties, a general requirement would be the availability of a high amount of disposable funds.

Virtually offshores, but formally regulators with a certain level of protection for the clients of Forex companies — Cyprus CySec , Malta MFSA and New Zealand FSP — can be referred to as the third-level jurisdictions. These jurisdictions require the availability of the local office, simplified reporting and reasonable taxes. An important feature of legal registration of the company in these countries is dealing with the European clients and a simplified process of opening a corporate bank account.

I would refer to BVI and Belize as the fourth-level jurisdictions.

Of all the potential advantages, a less painful process of opening a corporate bank account is certainly worth mentioning. To the fifth-level jurisdictions, I would categorize all the rest of the desirable offshores, where a Forex license is not compulsory — for example, the Seychelles or St Vincent.

The advantages and disadvantages are obvious. Incorporating a company and obtaining a license to conduct a Forex business in the Baltic countries, such as Latvia, for instance, should be referred to in a separate category.

However, I have seen this to be a recent trend. To date, many of my clients register their companies there because the registration process is fairly short around months and the subsequent opening of the bank account is relatively easy.

At the same time, Latvia is a part of the European Union and holds a reputation for having an organized legal system as well as a serious banking system. Registration in Latvia is especially popular among the beginner-brokers, who target European and post-Soviet countries. When choosing a jurisdiction, a very important consideration is the business plan created by the new company.

Who would be the first clients of the company? If they are existing clients, who are already familiar with the owners and have previously worked with the company representatives as IB, then the registration would not be of critical importance to them. Usually, brokerages obtain their significant financial licenses much later: One of the most famous banks in Russia — Alfa — is still using an offshore registration for the Forex department in the British Virgin Islands.

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Alpari and Robo Forex previously had a New Zealand office for a long period of time. The views expressed in these articles are those of the author and do not necessarily reflect the views of Forexware. Track Record Try a Demo Contact Us. Blog Home Types of Jurisdictions for Forex Companies Types of Jurisdictions for Forex Companies. As you can see, making a decision about the choice of the jurisdiction is critical for the owners of the future company and, hopefully, after reading this article, some of the questions about this complex decision have been answered.

At the very least, this will provide food for thought and open up a dialogue to make a wise decision. This information is based on personal experience and should not be construed as legal advice or formal recommendation. ForexWare FXStarterKit is a full solution Forex trading system for small businesses and startup brokerages looking to add more liquidity and MetaTrader trading solutions to their clients. Signing up for FX Starter Kit is as easy as registering, choosing a front-end trading platform, then customizing the user interface with your brand.

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