The Dubai Financial Services Authority (DFSA), the regulatory authority for the Dubai International Financial Center (DIFC) is set to allow retail FX brokers to set up shop in the affluent Emirate, according to a correspondent to senior executive officers seen by Forex Magnates.
The regulator currently allows FX brokers to only acquire clients the DFSA deems to be professional investors, requiring that they have over $1 million in liquid assets. In order to take on retail traders the brokers had to get a specific “retail endorsement” from the regulator, but the only firm that actually seems to have received the endorsement is Henyep Investment Bank.
The brokers that stand to be most affected initially by this change are SAXO Bank, OANDA and Alpari which already operating in Dubai. This development will also likely bring more firms to the Emirate looking for a base for the rich retail markets in the area.
Bryan Stirewalt, the Managing Director of Supervision at the DFSA, writes that recently the DFSA has been receiving increased interest from authorized firms and from applicants to offer FX trading to retail customers in or from the DIFC. “The DFSA is minded to allow this activity, keeping in mind certain legal limitations and systems and controls requirements.”
The said legal limitations revolve around United Arab Emirates Federal Law prohibitions on banking activity in the local currency as transactions in UAE Dirhams are strictly prohibited in the center. Other than Anti Money Laundering compliance and the already mentioned retail endorsement the FX brokers also need to have systems and controls such as intra-day and end-of-day counterparty and settlement limits, segregation of functions and other risk measures.
The additional controls and measures to be required from retail FX brokers by the DFSA in order to start operations are:
Tales from TIOmarkets: Not Just Another Trading CompetitionGo to article >>
1. A standard risk disclosure statement – The DFSA has developed a standard retail FX disclosure statement. This disclosure must be signed by each retail client prior to commencing any FX activity.
2. Verification of equivalent regulation in the jurisdiction(s) where the FX transactions are
conducted – Firms are required to confirm that the jurisdiction to which the DFSA clients are introduced or referred (and/or where the accounts are maintained) has equivalent or super-equivalent controls. The DFSA will only consider jurisdictions where the DFSA has a Memorandum of Understanding with the primary financial services regulator. Cyprus and the UK are among the approved jurisdictions.
3. A verified track record of the Firm or the group to which the Firm belongs and minimum
relevant experience thresholds on compliance and client facing staff – Firms proposing to offer retail FX products within the Center are required to demonstrate five years of experience in providing services in retail products under the supervision of a financial services regulator.
4. Segregation and monitoring of clients who are initially on-boarded through the DIFC
entity- Any Firm that introduces or refers clients to another jurisdiction must maintain a record of all introduced and referred clients from the DIFC. Further, the file must include all complaints and suspicious transaction reports lodged by each client.
5. Advertising file – Copies of advertising documents used in the UAE should be available on-site in each Firm.
6. Margin Requirements –
a. Margin and Maximum Margin Limit (“MML”) requirements on margin deposits will be
applicable to those Firms operating in an agency or principal capacity. A minimum
margin of 2% and 5% (50 to 1 and 20 to 1 leverage) for major and other currency pairs
should apply to all margin deposits.
b. Authorized Firms acting in an advisory capacity must adhere to the MML on margin
deposits. The MML requires Firms who engage clients from the DIFC to set a limit on the
maximum amount of margin deposit the clients will post. This will be based on the net
assets of the client at the time of the client on-boarding. This is determined to be 5% of
the net assets.