A few days ago FXDD, a large Metatrader broker, has announced that it has been granted licensing by the Malta Financial Services Authority (MFSA) to operate a Category 3 Investment Services company. Malta is a full member of the European Union, and its financial services regulations are fully harmonized with the EU Markets in Financial Instruments Directive (MiFID). FXDD Malta will provide Forex dealing services to retail and institutional clients. For the uninformed this may cause an eyebrow to be raised: why FXDD gets regulated in Malta out of all places? Malta also has an ‘offshore’ image which is always associated with easy and loose regulation. Well, they would actually be right in part.
So why would FXDD or any other respectable broker get licensed in Malta?
How Automation is Helping China’s Traders Compete with the WorldGo to article >>
The answer is simple: the MiFID passport: The Markets in Financial Instruments Directive (MiFID) as subsequently amended is a European Union law that provides harmonised regulation for investment services across the 30 member states of the European Economic Area. The main objectives of the Directive are to increase competition and consumer protection in investment services. As of the effective date, 1 November 2007, it replaced the Investment Services Directive.
In plain words, MiFID passport allows you to get registered and regulated in any of the EU countries and then “copy” the license to almost any other EU country. This way you can get registered in Malta but receive FSA in the UK much easily than doing the standard FSA process from A to Z. This is not to say that the FSA license received this way is in anyway less strict than the usual one but the process is whole lot shorter and easier. The same “copying” process can be made if the broker had gone through the regulation process in Cyprus but it is considerably more expensive. I expect many more small-medium brokers to follow this route in the coming months, especially those migrating from the US or Cyprus brokers looking to expand to Western Europe.