Online Forex Trading

The MFSA has just issued a notice informing applicants for a Category 2 or Category 3 licence to carry out online forex trading of a new set of conditions specifically targeted to such companies.

The new set of conditions put restrictions on the shareholding structure of such applicants by requiring at least one entity holding a direct qualifying shareholding in the applicant to be regulated in the provision of financial services.

The capital requirements for a Category 2 licence carrying out online forex trading activities have also been increased to EUR 730,000, which is the same as that required for a Category 3 licence.

There are also stricter competence requirements imposed on the members of the Board of Directors and other senior positions reporting directly to the Board of Directors.

The conditions put an emphasis on the local presence requirements and the corporate governance set-up and have elimnated the possibility to apply for a derogation from having an independent risk manager. In the case of a Category 2 licence, such risk management function may be outsourced to a local entity providing such services. In the case of a Category 3, a full time dedicated risk manager needs to be employed.

The new conditions also establish tighter requirements for the IT systems to be used by requiring an independent IT audit of such systems. Liquidity providers and counterparties also have to be regulated and any changes to such liquidity providers should be notified to the MFSA.

The ESMA guidelines on the sale of complex products (as online forex is listed as a complex product) would also apply.