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“In those three jurisdictions in particular, the regulators had to explain themselves and justify how these products became available to retail investors.” she adds. “Tis increased vigilance means both the brokers and regulators are very wary of what sorts of product they offer their retail investor,” says Lim.


One set of clients that should find it easier to obtain FX licensing and registration are those already registered in what Lim calls Tier 1 jurisdictions. “It’s generally easier for reputable FX houses already licensed in one of the Tier 1 jurisdictions – which include the UK, US, Japan or Australia – to become licensed/registered in Asian jurisdictions,” reveals Lim.


Rules for licensing forex brokers vary from country to country in Asia, but have similar


underlying requirements. Te applying company needs to show competency in financial management at the senior management level, a strong base in financial resources along with a robust back office system in reporting and compliance. Disclosure and protection of clients’ money is also a requirement.


Angelyn Lim


“The regulators in Hong Kong and


Japan particularly, are very strict,”


Naturally how far these principles are adhered to, or enforced, varies from one country to another. “Currently Tailand is surprising a lot of people by bringing in relatively sophisticated financial regulation. Te Taiwan regulator, on the other hand, has regulations and policies which are generally difficult to interpret, particularly by foreign players.” says Lim.


Hong Kong has strict forex licensing requirements. Primarily forex brokers apply for a leveraged foreign exchange trading licence, called a Type 3


20 | INSTITUTIONAL FX SERVICES - THE BROKERS HANDBOOK 2012/2013


licence, which requires paid-up share capital of HK$30 million, except where the corporation is an approved introducing agent in which case a paid-up capital HK$5 million is required. It also needs liquid capital higher than HK$15 million or, where the corporation is an approved introducing agent, HK$3 million, and the sum of 5% of total liabilities and 1.5% of aggregate gross positions for all foreign currencies apart from positions with a recognised counterparty.


As the foreign exchange market continues to make inroads into the retail market, in particular, it is likely that registration and licensing will continue to be a process not for the faint- hearted. But even in the Tier 1 jurisdictions, it will not so much be the problem of achieving what the regulators require but the initial and ongoing costs of compliance reporting, data retention and capital adequacy ratios.


Regulation & Compliance


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