Applicants for Online Forex Trading – Category 2/ Category 3 Investment Services Licence

On the 14^th July, 2015 the MFSA updated the notice outlining additional criteria with respect to the licensing of entities that would like to offer online forex trading to retail clients in terms of the Investment Services Act, Chapter 370 of the Laws of Malta.

The notice is meant to serve as guidance to the industry in relation to applicants for licences wishing to offer online forex trading to retail clients. Applicants are expected to satisfy these licensing criteria, which have been further tightened due to the high risks associated with forex trading by retail investors, which relies on automated systems, which products have a complex nature and are accessible to retail investors.

Applicants for a Cat 2 / 3 IS Licence, wishing to engage in online forex trading, thus have to abide by the criteria in addition to the conditions falling under Part A of the Investment Services Rules for Investment Services Providers. Such additional criteria set out requirements with respect to the following  the following: shareholding structure, capital requirements, competence requirements, local presence / corporate governance setup, expert advisors, record keeping, systems, liquidity providers/ counterparties.

All new applicants submitting to the MFSA will immediately have to abide by the additional criteria, along with those applications currently being processed with the exception of the Shareholding Structure and Capital Requirements provisions on which a period of 1 year from the date of the notice shall be granted to the relevant entities to regularise their position.

The updated notice gives the MFSA further discretion in accepting applications from a entities which are not themselves regulated and also introduces provisions relating to consumer protection. These include the duty of the Forex entity to display warnings on the website advising the consumer of the risks involved in online trading. The website must also contain detailed information about the nature of this type of investment and an explanation regarding the manner in which an online trade can be made.