UK Forex License

According to the Bank of England, the UK remains the single largest center of foreign exchange activity with a share of 38,1% of global turnover, despite this being a decrease from the 43,2% recorded in April 2019. One of the critical factors that have contributed to the UK’s enduring status as a forex powerhouse is its reputable and robust regulatory framework, offering various types of forex licenses that signify credibility, legitimacy, commitment to transparency, and accountability. The UK continues to offer plenty of opportunities for growth and success to those who navigate its regulations with diligence and integrity.

Advantages of the UK Forex License

The UK offers a world-class business infrastructure that is exceptionally favorable to forex businesses. Its financial ecosystem is known for the use of cutting-edge technology, extensive market access, and the aforementioned well-established regulatory framework. London, in particular, stands out as the epicenter of global forex trading, boasting a thriving community of traders, brokers, and financial institutions. The city’s strategic location bridges Asia and Europe which enables round-the-clock trading activities.

Holding the UK forex license demonstrates a commitment to complying with strict financial regulations, which attracts clients who prioritize security and transparency in their forex dealings. Clients, whether retail or institutional, trust forex brokers with the UK license because it’s an assurance of dedication to creating a secure trading environment. The UK’s regulator holds forex licensees to the highest standards of operational integrity by obligating them to safeguard clients’ funds, adhere to robust risk management practices, and implement anti-money laundering and counter-financing of terrorism (AML/CFT) policies and processes.

Moreover, UK forex licensees benefit from a particularly advantageous taxation framework that contributes to their overall financial health and competitiveness. One of the main benefits is the absence of Corporation Tax and Personal Income Tax for forex trading activities which means that forex businesses can retain a larger portion of their earnings. There are no Customs Duties levied on forex transactions, which further reduces operating costs for forex businesses. Also, the UK boasts an extensive network of international double-taxation agreements, consisting of over 100 countries, which ensures that income or gains originating in one jurisdiction and received by residents of another jurisdiction aren’t subject to duplicate taxation.

Furthermore, the UK doesn’t impose foreign exchange controls on its residents or businesses which is particularly beneficial for forex trading. This means that there are no government restrictions or regulations governing the conversion, transfer, or use of foreign currencies within the country. Forex licensees can conduct transactions in various currencies without such regulatory barriers, fostering flexibility and facilitating international trading operations. This flexibility is especially crucial in the forex trading industry, where transactions frequently involve multiple currencies.

Forex Regulations in the UK

Forex regulations in the UK are enforced and overseen by the Financial Conduct Authority (FCA), a reputable and diligent regulatory body that has strong international partnerships and collaborations with other regulatory authorities and organizations. The regulatory framework consists of various pieces of legislation and guidelines, ensuring a secure, transparent, and supportive forex trading environment.

The following national legislation, inter alia, is applicable to all UK-based 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

The Financial Services and Markets Act 2000 (FSMA) is a key piece of legislation in the UK that governs a wide range of financial activities, including forex businesses. The FSMA sets out the regulatory objectives of the FCA, which include protecting consumers, protecting and enhancing the integrity of the UK financial system, promoting competition in the interests of consumers, and ensuring that relevant markets operate transparently and with integrity. It also provides the framework for the authorization and regulation of financial services firms, including forex brokers, as well as details the criteria that UK forex businesses must meet to obtain and maintain a license from the FCA.

The Markets in Financial Instruments Directive (MiFID II) is an EU-wide regulation that significantly impacts forex trading. Although the UK has left the EU, MiFID II continues to apply through the domestic implementation of MiFID II regulations, and this way ensures continued access to European markets. A cornerstone of MiFID II is the obligation for brokers to achieve the best execution for client orders, i.e., execute client orders in a manner that secures the most advantageous terms possible for the client. This requires meticulous consideration of numerous factors, including pricing, execution speed, associated costs, and market impact.

The Money Laundering, Terrorist Financing, and Transfer of Funds (Information on the Payer) Regulations 2017 (MLR 2017) are a set of regulations aimed at preventing money laundering and terrorist financing activities. To adhere to these regulations, UK forex brokerage firms and other forex-related businesses must conduct risk assessments to identify and understand the money laundering and terrorist financing risks they face. The MLR 2017 also sets obligations for record keeping, suspicious activity reporting, and appointment of a Money Laundering Reporting Officer (MLRO).

Types of the UK Forex Licenses

In the UK, forex businesses can obtain various types of licenses depending on their specific activities and the services they offer. To determine the most appropriate license type, every applicant should first carefully evaluate the operational scope, target market, and the nature of the intended forex services.

The main types of UK forex licenses are as follows:

• The Proprietary Trading License (Dealer License) corresponds to “market-making” and encompasses proprietary trading activities, including the execution of financial instrument transactions
• The Agency Model License (Intermediary License), also referred to as Straight-Through Processing (STP), involves matching client trades with corresponding transactions from liquidity providers
• The Limited Broker License serves as an introducer or referral license, enabling licensees to engage in sales and marketing activities while not having the authorization to hold client funds

The key benefits of holding a Proprietary Trading License:

• Increased revenue streams as these license holders can generate revenue not only from spreads but also from market-making activities, potentially increasing their income
• 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:

• An increased client base as clients often prefer these licensees since they can get transparent execution without concerns about the broker trading against them
• Enhanced trust since this license can foster trust among clients, as they see that their orders are executed fairly and without 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 initiate a forex license application process, you’ll first have to establish a legal entity, whether it’s in the form of a company, partnership, or other recognized business structure. The specific legal structure and entity requirements vary depending on the type of forex license you’re seeking and the specific forex activities you intend to start. Just like with every step of starting a forex business in the UK, we can help you with choosing the right business structure on the basis of your unique business needs.

For the moment, keep in mind that every applicant must satisfy initial and maintained capital requirements that vary depending on the selected type of forex license:

• 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)

The following legal prerequisites are also of paramount importance:

• The company’s solvency to ensure there are adequate financial resources to operate safely
• A qualified and experienced management team capable of running a financial services business
• Robust internal AML/CFT policies and processes
• The company’s directors, officers, and significant shareholders must undergo the FCA’s fit and proper assessment to ensure they meet the required standards of integrity, competence, and financial soundness
• High standards of business conduct to ensure fair and ethical treatment of clients
• Effective risk management procedures in place to safeguard client funds and manage trading risks
• A comprehensive internal compliance framework to monitor and ensure adherence to regulatory requirements
• Robust client money segregation and protection mechanisms in place (if applicable)
• A formal complaints handling process to address and resolve client complaints in a timely and fair manner
• Safe and secure company’s IT systems, including adequate cybersecurity measures
• The implementation of processes of providing accurate and timely regulatory reports to the FCA
• Professional indemnity insurance (if applicable)
• Paying the relevant application fees

The following documents must be duly prepared by the UK forex license applicants:

• Company incorporation documents or equivalent
• A thorough business plan that outlines the extent of the forex trading activities, including operational functions, strategies for risk management, and financial forecasts
• Documentation demonstrating compliance with solvency requirements, including financial statements, capital adequacy assessments, and liquidity management strategies
• A detailed plan of AML/CFT procedures, including know-your-customer (KYC)
• Manuals outlining compliance frameworks and procedures to ensure adherence to regulatory requirements
• Documentation of effective risk management procedures (e.g., policies and strategies for safeguarding client funds and managing trading risks)
• A detailed plan of complaints handling procedures
• Documentation of security measures and protocols in place
• Proof of professional indemnity insurance coverage, if required for the specific license type
• Proof of payment of the relevant application fees
• Copies of passports (or other valid government-issued identification documents) of every company shareholder, director, and other key personnel
• Proof of address (e.g., recent utility bills, bank statements, or official government correspondence) of every company shareholder, director, and other key personnel
• Copies of CVs of every company shareholder, director, and other key personnel
• Written consent authorizing the FCA to conduct background checks, including credit checks and criminal record checks, on each shareholder, director, and other key personnel

If you’re providing documents in a language other than English, you’ll certainly need certified translation services. These services should specialize in translating legal and financial documents while ensuring accuracy, adherence to regulatory standards, and certification of the translated content. To assist you in this process,  our team can provide guidance or recommendations for certified translation services that are trusted, cost-effective, and time-efficient.

How to Register a Forex Company in the UK

Registering a company online is usually the quickest method. Provided that all the submitted information is accurate and there are no issues with the application, it can take as little as a few hours to one business day to receive the Certificate of Incorporation which takes you one step closer to applying for the UK forex license. You can choose from such legal business structures as a Limited Company (Ltd), a Limited Liability Partnership (LLP), and a Public Limited Company (PLC). A Limited Company (Ltd) is a common choice for forex brokerage firms and other forex-related businesses due to liability protection and the ability to raise capital by issuing shares.

The main requirements for a forex-focused Limited Company (Ltd) in the UK are as follows:

• At least one shareholder (no specific minimum or maximum limit on the number of shareholders)
• At least one director who can be the same as the shareholder (not every shareholder has to be a director)
• A Money Laundering Reporting Officer (MLRO)
• A registered office address in the UK 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 registered)
• A business bank account for financial transactions

The main steps for opening a new forex company in the UK are as follows:

• Select a unique, appropriate, and compliant name for your forex company
• Find a physical office location in the UK
• Prepare all the required documents, including certified translation
• Appoint a director and other key personnel
• Submit your documents to Companies House, the UK’s registrar of companies
• Pay the required registration fee to Companies House, which in the case of online incorporation is only 10 GBP (approx. 12 EUR)
• Open a business bank account for your company
• Prepare and submit your application for an FCA forex license
• Within 3 months of starting your forex business, register your new company for Corporation Tax with HM Revenue and Customs (HMRC)
• If your company’s taxable turnover exceeds the VAT threshold, you must also register for VAT purposes

The following documents are generally required to incorporate a company in the UK:

• Articles of Association
• A statement specifying the details of the company’s share capital, including the number and class of shares and their respective values
• A statement confirming that the individual named as director has consented to their appointment
• Statement of Compliance (Form IN01) providing essential details about the company, its directors, and its share capital
• Documentation of details of Persons with Significant Control (PSCs)
• Bank account details for the company to receive payments
• Proof of payment of registration fee
• Copies of passports of company shareholders and directors
• Proof of residential address of each company shareholder and director

How to Apply for the UK Forex License

Once the application is accepted by the FCA as complete, it usually takes around 6 months to assess it. If the application isn’t complete and requires further clarification, the assessment could take up to 12 months. To avoid delays, we strongly recommend consulting with our experienced team of lawyers here at Regulated United Europe prior to initiating the application process.

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

• Prepare all the required documents, including certified translation if applicable
• Pay the required application fees
• Register in the FCA’s online system Connect and submit the application form along with the required documents
• The FCA will assign a case officer who will assess whether the forex business meets, and will continue to meet, the FCA’s minimum standards, and will check the application against information held by other regulatory agencies in the UK or overseas
• Throughout the assessment process, you should expect to receive follow-up questions, and requests for further documentation or face-to-face interviews

While you have the opportunity to correct mistakes or gaps in Connect, substantive changes in the forex application package would indicate that you aren’t ready and organized, and therefore the regulator may ask you to withdraw your application and reapply. For this reason, it’s crucial to take the time to submit a complete and well-thought-through application in the first place.

If you’re successful, the FCA will grant a forex license that’s valid indefinitely, provided that your forex company continues to meet the regulatory requirements and obligations enforced by the FCA. Failure to consistently and continuously comply with national and international regulations may result in hefty fines, revocation of your forex license, and even imprisonment.

Ongoing Requirements for Forex Licensees in the UK

UK forex licensees must adhere to ongoing requirements and regulations enforced by the FCA to maintain their licenses and operate legally and responsibly. This includes adhering to rules related to client protection, financial reporting, and risk management. Forex brokers must ensure that clients’ funds are adequately protected by segregating client funds from their operational funds to prevent misuse or loss. UK forex licensees must also submit periodic financial reports and statements to the FCA in order to provide transparency regarding the financial health and stability of the forex business.

Needless to say, implementing and improving risk management procedures is essential to protect client funds and ensure the financial stability of the business. Therefore, forex licensees must ensure continuous and effective management of market risk, credit risk, and operational risk. Moreover, AML/CFT rules must be diligently followed and regularly updated to reflect evolving regulations. The AML/CFT rules include the conduct of thorough customer due diligence, the application of enhanced due diligence measures for higher-risk clients, and the maintenance of records of customer identification and transactions.

If you wish to start a forex trading business and obtain a forex license in the UK, our team here at Regulated United Europe will be delighted to support you in incorporating a forex company and applying for a forex license. We can also confidently guide you through the process of finding a viable forex license for sale and purchasing a ready-made forex business solution in the shortest possible time. With dedicated legal advisors, tax experts, and financial accountants at your side, you will find the processes of starting a forex business in the UK easy, frictionless, and transparent. Contact us now to schedule a personalized consultation and set the stage for long-lasting success.

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