Regulating offshore

Looking Beyond Established Regulatory Jurisdictions

Alternatively positioned regulatory bodies in offshore jurisdictions are becoming more attractive for globally operating brokers

In light of the stringent regulatory requirements in jurisdictions such as the United Kingdom, Australia, Cyprus, New Zealand and the United States, the licensing regimes of the Cayman Islands, the Bahamas, the British Virgin Islands and Mauritius appear to be becoming popular destinations for brokerage regulation.

Regulators such as the Financial Services Authority (FCA) in the United Kingdom, the Australian Securities and Investment Commission (ASIC), the Cyprus Securities and Exchange Commission, the Financial Markets Authority in New Zealand and of course the U.S. Commodity Futures Trading Commission have all imposed tighter regulation on brokerage services in their jurisdictions of late.

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A considerable sum of money is involved in setting up a brokerage firm in these jurisdictions in order to meet the upfront costs of the licensing application and the capital requirements to hold the license. The difficulty of obtaining regulation in these jurisdictions may be considered by potential new operators as overly burdensome when the costs of procuring the permit are added to the mix.

In Australia alone, a number of brokerages have been under investigation by ASIC, and in some cases their permits have been revoked, which for many potential operators could be seen as a disincentive to operate locally.

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The trend of businesses getting regulated in jurisdictions such as the Cayman Islands, the Bahamas, the British Virgin Islands and Mauritius is growing. It seems that businesses are increasingly investigating the opportunity to obtain a license from these jurisdictions.

Regulatory requirements in these jurisdictions are often seen to be less onerous, with less initial capital requirements and required documentation. There may also be other potential benefits in operating or being licensed in these jurisdictions including tax advantages.

Brokers looking to establish themselves in any jurisdiction should obtain advice from solicitors and accountants with knowledge of the relevant jurisdictions.

 

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