Starting a forex brokerage: licensing and incorporation

A licence is what separates a brokerage from a website. The regulator keeps a record of every proceeding against the broker, so a trader can check its history; the broker keeps client money in segregated accounts, so it cannot pay one client's withdrawal with another's deposit; disputes go to a regulator rather than to the broker's own support desk; and banks, payment providers and liquidity providers open their doors. This part explains how brokers compare the regulators and what every application comes down to.

The tiers

The market sorts regulators into tiers by capital, time, cost and reach. The figures below are the regulators' own; the forex licence page lists each country with its source and the date we last checked it.

Tier one: the United States and Japan

A retail forex dealer in the United States needs US$20,000,000 of adjusted net capital under CFTC regulation 5.7 and NFA membership; Japan's Financial Services Agency is comparably demanding. These are the markets of the largest groups and of brokers that already hold a licence elsewhere.

Tier two: the United Kingdom and Australia

The FCA's permanent minimum capital is £75,000, £150,000 or £750,000 depending on whether the firm holds client money and deals on its own account, with a statutory decision within six months of a complete application. ASIC requires a retail OTC derivative issuer to hold net tangible assets of A$1,000,000 or 10% of average revenue, whichever is greater. Both licences carry a strong name with banks and liquidity providers and serve their home market.

The EU passport: Cyprus and Malta

A Cyprus Investment Firm licensed by CySEC, or a Maltese investment services licence from the MFSA, carries the MiFID II passport to every EU and EEA country. The Investment Firms Regulation sets the same initial capital in both: €75,000 for a firm that holds no client money, €150,000 for one that does, €750,000 for one that deals on its own account. CySEC must decide within six months of a complete application. A Cyprus company with an office and staff in Cyprus is the vehicle.

Offshore, regulated: Seychelles, Mauritius, Labuan, Vanuatu, the BVI, the Cayman Islands

The Seychelles Securities Dealer Licence asks for US$50,000 of paid-up capital, a US$1,500 application fee and US$3,000 a year; Mauritius's Investment Dealer licence for MUR 1,000,000 of capital with published fees and two resident directors; Labuan's money-broking licence for RM1,000,000 of paid-up capital, an office in Labuan and an agency-only model; Vanuatu's Financial Dealers Licence for a VT 5,000,000 bond and fees in vatu; the BVI's investment business licence for capital adequate to the risk with US$2,200 to apply; the Cayman Islands for a Registered Person serving professional clients. They serve international clients, excluding markets that require a local licence, and banks assess them case by case.

Company only: Saint Vincent and the Marshall Islands

Neither licenses forex. Saint Vincent's FSA has required, since January 2023, that a company trading forex show a licence from another jurisdiction; the Marshall Islands has no regime at all. A company there is a group or holding vehicle beside a licensed entity, not a broker's home. Banks and payment providers treat an unlicensed company as unregulated, whatever its website says.

What every regulator asks

1. Capital: the minimum the licence requires, in a form the regulator accepts, with evidence of where it came from.
2. People: fit-and-proper owners, directors and the officers for compliance, risk and anti-money-laundering; some regulators require local directors or a four-eyes board.
3. Substance: an office, staff and management where the regulator can see them; the offshore centres have tightened this since 2021.
4. Policies: the business plan with projections, the compliance manual, the risk framework, the client-money procedures, the complaints process.
5. Systems: the platform, the bridge, the risk controls and the records (part 3).

The order of the set-up

The licence is one of four parts, and each part is reviewed on the one before it. The regulator licenses a company, so the company comes first and is formed where the regulator wants it. The bank wants to see the licence, or at least the application, before it opens the operating and client-money accounts. The payment providers want the licence and the accounts before they connect deposits and withdrawals. Form the company with the licence in view, and prepare the account and payment applications while the regulator reviews the licence, so the four land together. We set the route out in setting up a forex company: the order that works.

How long it takes

Where a regulator publishes a statutory timeline we quote it: six months from a complete application in the EU and the UK (twelve in the UK if the file is incomplete). Where it does not, we say so and give an estimate after the consultation, because the time depends on the completeness of the file and the speed of the answers. A well-prepared application is the single biggest factor you control.

What comes next

Part 5 covers the money: the capital a brokerage needs beyond the regulator's minimum, how to plan to break-even, and the marketing channels that bring clients. The regulators' current figures are on the forex licence page, and the company options on company formation.