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

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The MFSA recently circulated a 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.

These criteria arose from various matters that have occurred in dealing with applications of this nature, in addition to several alerts issued at EU level to retail investors with respect to the main risks involved in forex trading. 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 involves the following areas: 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. However, applications which are currently being processed by the MFSA have up to October 2015 to regularise their position with respect to shareholding structure and capital requirements.

The question remains as to how this will affect current IS Category 2 / 3 Licence Holders that offer online forex trading to retail clients, and the MFSA is expected to shortly address this query.

A copy of the notice is available here.

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