The Malta Financial Services Authority (MFSA), has issued a notice regarding new applicants for binary options trading licenses, signaling the regulator is clamping down on new brokers.
The MFSA say that the stringency of such new terms is a reflection of the high risks associated with binary options trading due to its reliance on automated systems, the complex nature of binary options products, the accessibility to such products by retail investors and other risks.
Making it impossible for completely new entrepreneurs to get a license, the MFSA shall not entertain any applications from firms that do not have an established track record in the industry. This includes an established good reputation, previous operating experience within a regulated environment, a good track record in handling consumer complaints and tight competence requirements for key personnel.
A licence applicant is also subject to a minimum initial capital requirement of €730,000 (the same as forex brokers since December 2014) . Furthermore , the MFSA reserves the right to at any time subject a binary options trading company to an increased capital requirement where it deems that such an increase is justifiable in light of the volume of the licence holder’s business. Additionally, the regulator reserves the right to request that the ultimate beneficial owner of the license provide it with a wealth statement signed by an accountant.
Mandatory Local Presence
Using the island just for regulations purposes is no longer possible as the MFSA emphasis it expects that the core licensable activities of the company are carried out in and from Malta. This applies to the establishment of trading policies, the monitoring and control of trades, access and controls over any critical data, the selection of counterparties and the establishment of pricing policies.
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Furthermore, the MFSA expects that the licence holder appoints a locally-based and full time risk manager responsible for designing, implementing and monitoring its risk management policies and procedures.
With respect to outsourcing, the licence holder may be allowed to outsource only certain “non-core activities” to third parties. The applicant will be required to show to the satisfaction of the MFSA that the licensable activities applied for will actually be undertaken in and from Malta.
The MFSA will therefore only consider requests for outsourcing arrangements with external parties that are time-limited and which are restricted to a limited number of support services, and only in the initial stages of authorisation.
In the case of applicants that will initially rely on a number of support services from their parent company or other third parties, the MFSA expects the submission of a detailed plan for the eventual phasing out of the outsourcing / support services.
As for the all important issue of reaching out to over European markets based on the local license,the Maltese regulator demands that prior to the passporting to other EU member states the binary options trading company shall ensure that the trading of binary options is accepted and permissible in that other EU member state.