UK Forex License

However, the Bank of England mentioned that despite this being a decrease compared to the 43.2% recorded in April 2019, the UK remained the single largest center of foreign exchange activity with a share of 38.1% of global turnover. A well-regarded and stable UK regulatory environment has been one of the main pivotal reasons that have kept this country among the titans of forex, possessing in its armory different types of forex licenses that denote credibility, legitimacy, commitment to transparency, and accountability. It is fair to say that the UK continues to offer plenty of opportunities for growth and success for those who navigate its regulations with due diligence and integrity.

Advantages of the UK Forex License

The UK has a world-class business infrastructure that is very supportive of forex businesses. The financial ecosystem in the UK deploys leading-edge technology, offers wide access to the market, and boasts a sound regulatory framework, as discussed above. There cannot be any doubt that London is the global hub of forex trading, which houses a rich community of active traders, brokers, and other financial institutions. The location of this city ensures that trading operations can take place around the clock, as it forms a link between Asia and Europe.

Holding the UK forex license basically means the brokerage follows strict financial laws, and this is what it could take for security and transparency in one’s dealing of forex. Be it a retail or institutional client, the trading clients do establish a sense of faith in forex brokers with a UK license because this would provide them with assurance that it is a committed service to building a secure environment for trading. The UK regulator requires forex licensees to maintain the highest standards of operational integrity, including protecting clients’ funds, maintaining effective and prudent risk management practices, and maintaining AML/CFT policies and procedures.

Besides that, UK forex licensees are in a specially privileged tax environment that contributes to their aggregate financial health and competitiveness. The first major advantage is that no Corporation Tax or Personal Income Tax payable on forex trading activities provides the means for a forex business to retain more of its hard-earned revenue. Another major advantage of forex transactions is that no Customs Duties are imposed, further reducing operation costs for forex businesses. Also, it has an extended network of more than 100 international agreements against double taxation. These ensure that income or gains arising in one jurisdiction and received by residents in another are not subjected to taxation twice.

Besides this, the UK does not impose foreign exchange control on its residents or businesses, which is pretty helpful, especially for forex trading. This means, of course, that there is no governmental restrictions or controls on the conversion, transfer, or use of foreign currencies within the country. Licensees in forex can therefore transact business in a number of currencies without these regulatory obstacles to create flexibility and to accommodate international trading activities. This kind of flexibility is so necessary in the industry of forex trading, where transactions often involve more than one currency.

Forex Regulations in the UK

The UK Forex Regulations are enacted and policed by the Financial Conduct Authority, one of the more respected regulatory bodies that is proactive and very much hooked up with other regulatory bodies and organizations on the international horizon. It shall have various legislative instruments and guidance to fall under this category of regulatory framework, which ensures a safe, transparent, and congenial forex trading atmosphere.

The following are only examples of national laws that should apply to all UK-established forex businesses:

• Financial Services and Markets Act 2000 (FSMA)
• The Markets in Financial Instruments Directive (MiFID II)
• FCA Handbook
• The Market Abuse Regulation (MAR)
• The Money Laundering, Terrorist Financing, and Transfer of Funds (Information on the Payer) Regulations 2017 (MLR 2017)
• Terrorism Act 2000
• Anti-Terrorism, Crime, and Security Act 2001
• Counter-Terrorism Act 2008
• Proceeds of Crime Act 2002

Financial Services and Markets Act 2000 (FSMA) provides regulation in the UK over a wide range of financial activities, including forex businesses. FSMA states that the regulatory objectives of the FCA are to protect the consumers, protect and enhance the integrity of the UK financial system, promote effective competition for the benefit of consumers, and ensure that relevant markets operate fairly and with integrity. It also details the conditions for authorization and control of companies offering financial services, including forex brokers, and lists the different requirements a UK forex company needs to meet in order to become licensed and maintain a license with the FCA.

The Markets in Financial Instruments Directive (MiFID II): This EU-wide legislation has a significant impact on forex trading. While the UK has exited the EU, MiFID II remains applicable through domestic implementation and hence in this manner continues to ensure access to European markets. One of the cornerstones of MiFID II is the duty for brokers to perform best execution of client orders; in other words, to execute their client orders in a way that enables them to obtain the best possible result for the client. This involves an attention to many details that must be considered including the price, the speed of execution, the cost to the firm and any impacts which might occur to the marketplace.

Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017

MLR 2017 can be defined as a set of regulations developed to counter money laundering and terrorist financing activities. These regulations would imply that UK forex brokerage firms and any other kind of forex-related businesses would have to conduct risk assessments for the purposes of spotting and understanding the risks of money laundering and terrorist financing to which they are exposed. What is more, under the MLR 2017 certain requirements concerning record keeping, reporting of suspicious actions and designation of an MLRO would be raised.

Types of the UK Forex Licenses

In the UK, forex businesses can be licensed in various forms, depending on their specific activities and the services offered. In this respect, each applicant should make sure that the scope of operation, target market, and the nature of forex services being contemplated are properly assessed in order to decide on the most appropriate form of license.

The main types of UK forex licenses are as follows:

• Proprietary Trading License (Dealer License): It is the equivalent of the “market-making” operation and covers an operation of proprietary trading, including execution of financial instrument trades.
• Agency Model License (Intermediary License): Also known as STP, matching of the customer’s trades in the system with corresponding trades received from the providers of liquidity.
• The Limited Broker License is an introducer or referral license that allows these licensees to conduct sales and marketing activities but not permission to hold the client funds.

The most significant benefit of being in the possession of a Proprietary Trading License:

• Much more variety in streams of income due to the fact that such license owners can get revenues not only from the spread but also market-making revenues as well, which could increase their earnings.
• Being a market-maker can boost a company’s reputation and enhance its market presence, which will attract clients looking for reliable and stable forex services.
• These license holders can have more effective risk management control over their trading activities, allowing them to mitigate risks successfully.

The key benefits of holding an Agency Model License:

• Larger clientele because clients often prefer these licensees since they can get transparent execution without concerns about the broker trading against them.
• Much better trust because this license can instill confidence among clients, wherein they know their orders are being executed fairly and with no interference.
• Forex businesses with an Agency Model License can tap into a wide pool of liquidity, potentially leading to competitive spreads and better pricing for clients.

The benefits of holding a Limited Broker License:

• Forex businesses can concentrate on marketing efforts without the operational complexities of managing client funds.
• Companies with this license can form effective partnerships with authorized brokers, expanding their service offerings and potentially receiving referral commissions.

FOREX LICENSE IN THE UK

Requirements for the UK Forex License Applicants

To start a forex license application procedure, you will need to form a legal body first, be it in a kind of company, partnership or any other form of business organization. Of course, the specific variety of license that you are trying to get, along with the specific kind of forex activities you are hoping to start, will be a determining factor in the exact legal structure and entity requirements. As with all elements of the setting up of a forex business in the UK, we are here to assist you in deciding upon the best possible business structure to suit your very particular business needs.

For now, keep in mind that any applicant must fulfill the initial and maintained capital requirements, which vary depending on the type of forex license selected:

• The Proprietary Trading License – 750,000 GBP [approx. 868,000 EUR]
• The Agency Model License – 150,000 GBP [approx. 174,000 EUR]
• The Limited Broker License – 75,000 GBP [approx. 87,000 EUR]

Following are some of the most important legal requirements:

• The firm’s solvency to ensure that it is adequately financed to carry on the business without hindrance to its being able to operate safely.
• An experienced and suitably qualified management who could run a financial services firm.
• Proper internal AML/CFT policies and procedures.
• The company directors, officers, and significant shareholders should be subject to the FCA’s fit and proper test to show they possess the required standard of integrity, competence, and financial soundness.
• High principles of business conduct towards the fair treatment of the clients.
• Effective risk management procedures to protect the client funds and manage certain trading risks.
• A sound internal compliance framework to monitor and ensure compliance with relevant regulatory requirements.
• Stringent client money segregation and protection arrangements where applicable.
• A formal complaints handling procedure for dealing with and resolving client complaints in an efficient and fair way.
• Company’s IT systems security, including all the required cybersecurity measures.
• Establishment of the regulatory reporting processes for submitting accurate and timely reports to the FCA.
• Professional indemnity insurance against any origin.
• Paying the applicable fees of applications.

The UK Forex license applicants have to duly prepare the following documents:

• Company incorporation documents or equivalent.
• A complete business plan which should encompass the scale of foreign exchange trading activity, operation functions, risk management policy, and financial projections.
• Evidence of compliance with the requirements of Solvency: capital adequacy, liquidity management policy, and financial statements.
• Detailed procedure for AML/CFT, including KYC.
• Compliance manuals on the framework and procedures for maintaining compliances with regulatory requirements.
• Records of sound risk management practices, for example, policies and strategies in place to protect client funds and to manage trading risk.
• A detailed plan of complaints handling procedures.
• Records of security measures and protocols in place.
• Proof that professional indemnity insurance, where required for that license type.
• Proof of payment of applicable application fees.
• Copies of the passports or such other valid government-issued identification documents of all the shareholders, directors, and other officers of the company.
• Proof of residence address: recent utility bills, bank statements, or official government correspondence, for all the shareholders, directors, and other officers of the company.
• Copies of curriculum vitae for all the shareholders, directors, and other officers of the company.
• A written consent from each shareholder and director, giving a right to the FCA to conduct background checks, which also includes both credit and criminal record checks.

The certified translation service will definitely be required if the document provided is in a foreign language other than English. The provision of such service will relate to the translation of legal and financial documents with possible accuracy, correctness according to regulatory standards, and certification of the translated content. To help you out for the same, our team can guide you or recommend some certified translation services that are trusted, cost-friendly, and time-efficient for the translation works.

How to Register a Forex Company in the UK

In general, the registration of an online company is much faster. Provided that all the data submitted is right and no objections are raised concerning the application, one can obtain the Certificate of Incorporation in as little as several hours up to one business day, which means you can take another step further toward applying for the UK forex license. You can choose a type of business structure as a Limited Company (Ltd.), a Limited Liability Partnership (LLP), and Public Limited Company (PLC). Most forex brokerage firms, as well as all other types of forex business entities, prefer to be registered as a Limited Company (Ltd.) due to liability protection and also because, for the most part, it allows them to raise additional capital by means of creating shares of the company.

The main requirements for a forex-focused Limited Company Ltd. in the UK include the following:

• One shareholder at least, and there is no minimum or maximum limit on the number of shareholders.
• One director is needed, and that director could be the same person as the shareholder; not every shareholder has to be a director.
• One Money Laundering Reporting Officer (MLRO).
• A UK registered office address where official correspondence from Companies House and other government agencies can be sent – a physical location, not a PO Box, in the same country of the UK, e.g., England, where the company is to be registered.
• Business bank account for financial transactions.

Following are the main steps of opening a new forex company in the UK:

• Unique, relevant, and compliant naming of your forex company.
• Locating a physical office in the UK where the business shall operate.
• Preparation of all the necessary documents, which also includes certified translation.
• Appointment of a director plus other key personnel.
• Filing of documents with the registrar of companies in the United Kingdom, known as Companies House.
• Payment of the registration fee with Companies House, which, in the case of online incorporation, is only 10 GBP approx. 12 EUR).
• Open a bank account in the name of your company.
• Prepare the application and submit it to obtain an FCA forex license.
• Within 3 months from the date your forex business begins, your new company must register with HMRC for Corporation Tax.
• When your company’s turnover exceeds the VAT threshold, you are obliged to register for VAT purposes.

Commonly, the following documents and information will be necessary and required for the incorporation of a company in the UK:

• Memorandum of Association.
• A statement of the proposed share capital of the company, giving the number and class of shares and their values.
• A statement that the person named as a director has consented to act as a director.
• Statement of Compliance-Form IN01: This gives the required information of incorporation, the details of the directors, and the share capital of the company.
• Information on Persons with Significant Control (PSCs).
• Bank account details where the company is going to receive payments.
• Proof of the payment of the registration fee.
• Copy of the passport of all the shareholders and directors of the company.
• Proof of the residential address of each of the shareholders and directors of the company.

How to Apply for the UK Forex License

Under normal circumstances, from the date when the application has been considered complete by the FCA, it takes 6 months to review the application. However, if the application is incomplete, and further clarification is required or needed, the review can take a year or even more, that is 12 months. So as not to go through such long periods of waiting, we do highly recommend engaging the services of our well-seasoned lawyers here at Regulated United Europe well in advance before commencing the application process.

The main steps of the forex license application process in the UK are as follows:

• Prepare all necessary documents, including, if required, certified translation;
• Pay the required application fees;
• Register in the FCA’s online system Connect and send the appropriate form along with the required documents.
• The FCA will designate a case officer who will assess whether your forex business is meeting and will continue to meet the minimum standards set by the FCA and check the application against information held by other regulatory agencies in the UK or abroad.
• During the course of the assessment, you will be asked follow-up questions, and you may be requested to provide additional documentation or attend face-to-face interviews in support of your application.

While you may be able to correct errors or omissions in Connect, substantive edits to the forex application package would indicate that you are not prepared and organized and, therefore, the regulator may ask you to withdraw your application and reapply. For this reason, it is important to take the time to file a complete and well-thought-through application at the outset.

In case of success, the FCA issues a license which is indefinite, provided your forex company remains in compliance with the regulatory requirements and obligations laid down by the FCA. Failure to comply consistently and continuously with national and international regulations involves severe fines, revocation of forex licenses, and even imprisonment.

Ongoing Requirements for Forex Licensees in the UK

Therefore, UK forex licensees are required to continually observe the requirements and regulations put in place by the FCA, which would see to it that licensees lawfully and responsibly have their licenses to date. It also includes following the rules that touch on client protection, financial reporting, and risk management. Forex brokers are supposed to ensure adequate protection of their clients’ funds by segregating client funds from the firm’s operating funds to avoid misappropriation or loss. UK forex licensees are also under obligation to file periodic financial reports and statements with the FCA for insight into the financial soundness and stability of the respective forex business.

Needless to say, the implementation and enhancement of risk management procedures become cardinal in protecting the clients’ funds and maintaining the financial soundness of the business. Therefore, the licensees of forex have to make sure that there is continued and effective management of market risk, credit risk, and operational risk. Moreover, every detail regarding the AML/CFT rules should be pursued with due diligence and updated from time to time because these rules keep on changing. Among the said AML/CFT rules are complete customer due diligence, application of enhanced due diligence measures for higher-risk clients, and records of customer identification and transactions.

Should you be interested in starting a forex trading business and obtaining a forex license in the UK, our staff here at Regulated United Europe will be more than happy to assist you with the formation of your forex company and the process of applying for a forex license. We can definitely help you find a viable forex license for sale and purchase a ready-made Forex business solution in the shortest time, guiding you through it. Since you will always have dedicated legal advisors, tax experts, and financial accountants by your side, the processes of starting up a Forex Business in the UK will be easy, smooth, and transparent. Now, contact us for personal consultations and set the grounds for success that can last.

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