This week’s article continues the examination of “Offshore” Jurisdictions offering Broker’s License Products.
This time around we will be looking at the option of applying for a Forex Broker’s License in the BVI (British Virgin Islands).
The issuing of Forex Broker’s License in the BVI is governed by the provisions of the BVI Securities and Investment Business Act (“SIBA”).
To date, only a handful of these licence applications have been granted by the BVI Financial Services Commission (“FSC”). From past experience, the FSC will heavily scrutinize all aspects of Forex business. In particular, they will look at the risk levels of the potential licensee and will strongly focus on the degree of leverage offered to retail investors. The FSC will also need the exact details of how the Forex provider operates with regards to margin calls and the closing out of trades. Each potential licensee will also have to review their levels of capital maintenance to ensure that this is sufficient to cover the potential risk and exposure of its investors.
All applicants should be advised from the start that the process will involve a significant amount of correspondence with the FSC and that obtaining an investment business licence under SIBA is not a mere rubber stamping process.
The license should be applied for by a BVI Company which should have (i) no corporate directors and (ii) at least two directors that are individuals;
It should be noted that, in addition to having two directors, the Company will need to appoint external auditors, a money laundering officer and a compliance officer (unless the BVI company can avail itself from an exemption which is discussed in more detail below). Section 75 of SIBA requires a licensee to have an auditor for the purposes of auditing its financial statements.
Provided the Company’s business is small and non-complex, the BVI authorities will probably allow for the compliance officer and the money laundering officer to be the same person. To the extent the Company has employees dealing with its internal auditing, we advise that this be flagged to the FSC as it will be evidence that the Company has good corporate governance procedures in place; furthermore it is likely that the Financial Services Commission will make this a legal requirement in the future.
Compliance Officer Exemption
The general rule is that a licensee must appoint a compliance officer. However, The Financial Services (Exemption) Regulations, 2010 exempt certain licensees from the obligation to appoint a compliance officer provided (a) the licensee does not have a physical presence in the Virgin Islands and (b) that it is either regulated in the jurisdiction where its business is conducted or is part of a group of companies that is subject to regulatory supervision.
Licence Application Forms
For your information, I will describe the relevant forms you need to file as part of the Application:
1. General Part – This is a tick the box style form wherein you indicate the type of license required. We can complete this on your behalf once you confirm what licensable activities you will be undertaking.
2. Part 1 – Application for a Licence or Certificate as a Financial Services Business Provider; In this form you need to outline details of the applicant applying for the license and the key parties, your experience in the relevant business , Compliance procedures, Financial Resources, Business plan, Fitness and Propriety etc
3. Part 4 – Additional information required for Application for an Investment Business Licence ie Address of the applicant’s place(s) of business + Authorised representative’s details ;
4. Part 5 – Additional Information. This form is not compulsory, but can be used to provide any additional information that you wish to be submitted with the Company’s license application. It is advisable to submit some additional information which goes to the competence, experience, expertise and the ‘fit and proper’ nature of the managers of the business;
5. Part 6 – Declaration that, to applicant’s knowledge, all facts are true and accurate;
6. Form B1- Application Form for approval of external auditor. (The external auditor will need to submit other documents with this application form); and
7. Form A - “Application for approval of Directors, Compliance Officers and Senior Officers”. This form will need to be completed by each director of the company, the compliance officer, each beneficial owner/controller of the Company and any other person having a senior managerial role (if any) such as a money laundering officer or internal auditor employed by the Company. Each of these individuals will need to provide, amongst other things:
a. Certified copy of passport;
b. Professional, Financial and personal references;
c. Personal Statement as to suitability for role; and
d. CV and certified copies of qualifications.
In addition to the above we advise each individual completing Form A to provide a certified copy of a recent utility bill showing their current address.
Documentation to be provided by the Company
Here is a summary of the documents that will need to be provided by the Company as part of the application:
1. Certificate of Incorporation/Articles of Association and Memorandum/Certificate of Good Standing (Paragraph 5, Part 1);
2. Letter explaining the experience, competence and expertise that the Company has to run its business (Paragraph 6, Part 1); as much evidence should be included as possible;
3. Form A needs to be completed by each shareholder/controller and director as well as the compliance officer and each senior officer (Paragraph 8.1/9.1, Part 1);
4. Letter from Company’s auditor confirming its willingness to act for the Company (Paragraph 10.2, Part 1);
5. Letter from our BVI Lawyers confirming their willingness to act for the Company (Paragraph 11, Part 1);
6. Copy of the Company’s compliance manual, including client acceptance procedures and know-your-customer policies (Paragraph 12, Part 1);
7. Capital requirements (Paragraph 13.1, Part 1) – although there are currently no minimum capital requirements the licensee is required to maintain capital resources that are adequate (and reasonably determined by the directors) to support its investment business. Please note that the FSC has power to impose minimum capital resources as part of the licensing process. The FSC will usually look at the company having minimum capital resources of US$250,000;
8. A statement of capital of any other company held, directly or through a subsidiary, as an asset of the Company (Paragraph 13.2, Part 1);
9. Statement of assets and liabilities of the company certified by a director (Paragraph 13.3, Part 1);
10. If the Company has historical audited accounts for the past three years, copies to be provided (Paragraph 13.4, Part 1);
11. Summary of insurance policy and copy of the policy schedule. All licensees are required to obtain professional indemnity insurance (Paragraph 13.5, Part 1);
12. Business Plan (Paragraph 14 of Part 1);
13. Two references (if applicable) in respect of Company, one of these references to be from a regulated entity (Paragraph 18, Part 1); and
14. Applicable licence fee for each category of licence to be applied for.
Type of Licence
The annual licensing fee due to the BVI Financial Services Commission will depend on what investment business you wish to undertake. Hence you will need to specify exactly what services you be will providing. In particular, it would be helpful if you could expand on the scope of the Forex trading services that will be provided. Usually it is helpful to know whether the client will be:
• effecting trades in the capacity as agent or is it acting as a market maker;
• providing customers with investment advice; and
• exercising their own discretion and managing customer portfolios.
Generally speaking, there is an application fee of US$1,000 per category and an ongoing annual fee of $1,500 per category/sub category.
Based on our previous experience with SIBA licensing applications I would estimate that our professional fees would be as follows, exclusive of disbursements (which include the licence fees and any incorporation fees should we also be instructed to incorporate the company):
1. Our legal fees will be approximately US$39,000 to US$42,000 to prepare, review and file the application for the forex license including reviewing and commenting on the business plan and compliance manual which are documents which the FSC will heavily scrutinize. Following submission of the license application, and subject to any fixed fee arrangement agreed with the client, any additional work would be charged on a time spent basis in respect of dealing with any additional requests for information received from the FSC as it is difficult to quantify how long this process will take and how much extra information/correspondence would be required.
2. US$2,000 per annum for provision of an Authorised Representative which is required by the BVI Financial Services Commission (FSC). This is only applicable once the application is granted.