RETAIL e-FX PROVIDER
>>> Staying legal
Platis says being regulated is important for a start up as it adds weight to it from a client’s perspective. “Tere is an undoubtedly increased marketing value in a regulated firm versus an unregulated one. Especially in these times, where the protection of investors’ money is as important as returns. A regulated firm can demonstrate such protection by reference to the regulator and the jurisdiction it is under. Tis is why EU-regulated FX entities can be seen to be growing so fast recently.”
Lior Shmuely
“Partnering with an IT solutions company that offers not only a true turn key solution but also a one stop shop for all the necessities required to start a brokerage, is the ideal way to minimise the obstacles in starting a brokerage firm.”
capital. Similar to the increased regulatory need for capital, the operational need for capital means that there are fewer and fewer firms gaining a larger portion of the market for MTP trading clients.”
Dr. Stelios Platis, managing director at MAP
S.Platis, agrees that regulation is an issue: “One of the main hurdles for start ups is dealing effectively with the required regulation. On the other hand, being regulated in a respectable jurisdiction is a proof of one’s ability to safeguard clients’ money, providing best execution to one’s clients, handling clients’ requests and even guaranteeing an amount in case of bankruptcy. And this has unquestionable marketing value.”
“However, being regulated also implies an important cost not easy to bear by some start ups,” continues Platis. “Furthermore, regulation restricts (especially to non-experts) some aspects of marketing and even profit making. Tis leads to a common mistake, which is to first try out the business without regulation until one grows, something that may end up costing a brand and even its directors and shareholders their aspirations of ever becoming regulated in the future.”
146 | january 2012 e-FOREX
Te legal jurisdiction of an FX brokerage firm will be one of the key factors on which to base the decision for the location of a start up, says Behnstedt. “Te recent regulatory discussions about the Dodd-Frank rules and their implementation plays an important role here,” states Behnstedt. “Obviously, from a brokerage firm perspective, the legal jurisdiction with the lowest regulatory requirement seems to be the best choice for location, but on the other hand clients want to deal with brokers where a proper trading environment has been ensured by respective legal requirements. So, brokerage firms need to balance the residence choice with their envisaged business proposition. Once the legal jurisdiction has been chosen we strongly advise consultation with local legal and tax advisors to work out a plan for successful registration of the company.”
Getting registered
On the steps required to make sure firms are properly registered, and all relevant legal and compliance requirements are met in the region they will be operating in, Platis advises that the key is doing your homework. He explains: “Te most important step in this direction is first to do your research, and do it well. Selecting a suitable jurisdiction to set up your brokerage is the most important step. One has to weigh between reputation and cost to maintain a license in that jurisdiction. Getting a license is relatively easy and relatively cost efficient, if one chooses the right consultant, of course.”
“However, the most important calculation is the operating cost in that jurisdiction,” Platis adds. “For example, think about the cost to maintain any necessary physical presence, compliance officers, internal auditors, and the frequency and depth of regulatory reporting, amongst other considerations.”
Leahy also notes: “Budget for and hire attorneys, consultants and technology providers who have existing global clients and who are knowledgeable in
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