SVG FSA Does Not Oversee FX Activity
First of all, let’s get one thing straight, and that is forex activities do not exist in SVG, theoretically. So, there is no so-called FSA-issued FX Brokerage License in reality, and all FSA licenses are corporate registration.
The FSA was founded in 2012, which is still young. Back then, the SVG authorities wished to promote economic growth by developing offshore finance, hence the founding of the regulator. According to the FSA Act, its role is to regulate financial entities such as non-banks within the country. But no license that authorizes trading businesses related to foreign exchange, brokerage, or a binary option is issued by FSA whatsoever. But the regulator does not prohibit a registered International Business Company (IBC) to engage in such activities, and the fact is, a big portion of financial entities registered in SVG are engaged indeed.
On the other hand, the requirements to obtain an SVG FSA license are minimal. Normally, no business plan is needed, no background check, no brick-and-mortar office in SVG, and low initial capital requirement. So, it quickly gained popularity among companies. For startup brokers, particularly, it is a very friendly license for them.
But at the same time, people with ulterior motives in the industry are also taking advantage of it, by covering up their true intentions with a legally issued license (but if a broker only has an SVG FSA license, and it provides forex trading, then the movement of funds is not overseen). Many investors fell victim to fraud or suffered from unregulated and horrible trading experiences.
But Why the Move, now?
The move this time, according to FSA’s Notice, is a response to the increasing fraud complaints on forex brokers. The trend is likely to damage the reputation of SVG as an international financial hub. There always has been a notification on FSA’s homepage. In February 2022, the regulator also mentioned on their website that “until such time that appropriate legislation is put in place to address Forex activities, there is no legal prohibition against a BC or LLC carrying out that activity or from so stating in its Articles of Incorporation or Articles of Formation.” Apparently, they consider the time is now.
Therefore, some industry insiders believe that the ultimate purpose of the FSA’s action is to make sure only FX brokers licensed by jurisdictions where FX is strictly regulated come to them to register so that their reputation can be recovered. But some other people have a different interpretation of the Notice, suggesting that the requirements are simply too stringent, and wonder if they are possible, or is there a space for shady business where key persons with sole discretion will be somewhat bribed?
For example, even though it is not entirely impossible to secure a broker license in 45 days, it is very challenging. Take the UK FCA license as an instance, which takes about 6 to 12 months to nail down. The time length depends on how quickly the main FCA forms and supporting documents (including business plan and financial projection) can be organized and how much longer it takes for an FCA official to be assigned to your case.
At present, Fazzaco has noticed that several B2B-oriented compliance companies have offered to help troubled brokers with the licensing before the final date stipulated in the Notice, so they won’t get struck off of the register due to compliance failure.
Why Does This Piece of FSA License Become A Target of Growing Criticism?
Offshore regulation is no stranger to the forex market. In fact, the industry has seen an increasing number of brokers turning to seek offshore licenses over the years since regions like the EU, Australia, the UK, and the US have clamped down on regulations. Also, they’ll have fewer taxes and rules, so they can offer flexible leverages and more diverse products. So if you look at the bright side, offshore regulation not only allows more startups to participate in the game but makes the overall trading more diverse.
However, unlike other popular offshore regulators (e.g. Seychelles FSA, Mauritius FSC, Vanuatu VFSC, etc.), the FSA license of St. Vincent and the Grenadines does not regulate the forex trading practices of brokers registered there.
Because of this, there has been an increase in complaints and complaints against SVG FSA-licensed brokers in recent years. However, everything has to be seen from two aspects, after all, SVG FSA does give many brokers who are willing to provide quality trading services an opportunity to start, so it is not that brokers with SVG FSA licenses are unreliable, after all, many of them, such as HYCM, Zenfinex, WeTrade, and many others, also hold the license from UK FCA. But we should be cautious with those that only have an SVG FSA paper, they are the reason behind the growing criticism.
What Will Happen to The Brokers If They Failed?
Thunder X Pay understands, based on the FSA’s materials, that registered brokers who fail to submit the requisite documents on time, will be struck off of the register as per Article 1, Section 37 (1) of the FSA Act, and Section 172 (1) (a) (ii) of the International Business Company (IBC) Act 2018 Amendment.
But, it is also mentioned by FSA that “extensions may be granted to a company upon the submission of an application to the FSA before the deadline stipulated in the notice. Extensions will be granted on a case-by-case basis.”
Although many compliance tech companies have begun to take advantage of this SVG FSA regulatory change, promoting that they can solve the licensing problem for brokers who are worried about it, the final direction of this incident will still need to wait until the stipulated deadline, which is March 10 this year, to unveil.
Published 14/03/2023
By Michael S.
