The Financial Markets Association of Vanuatu (FMA) has unveiled its first comprehensive survey of worldwide regulatory best practices in the online trading of financial derivatives.
Titled Comparative report on the licensing and regulation of financial intermediaries in the OTC derivatives market, the work provides a hefty 125 pages of insights from nine leading jurisdictions – Australia, the Bahamas, Belize, the BVI, Cyprus, Labuan, Mauritius, Seychelles and Singapore. Crucially, the report includes multiple recommendations for making Vanuatu's Financial Dealer License (FDL) program more transparent and accountable to international regulatory bodies while at the same time improving its appeal to derivatives brokers worldwide.
These businesses specialize in the cross-border trading of over-the-counter (OTC) derivative instruments of assets like forex, commodities, precious metals and cryptocurrencies. While they mostly operate online and know no physical borders, they do need to set up shop in specific jurisdictions in order to facilitate access to banking and payment services, and more importantly, to give a measure of trust to traders who use their platforms.
"An ideal license should strike a balance between being cheap, easy and fast to obtain, while having sufficiently strict requirements to ensure credibility,” the report notes. It then goes on to list a series of six areas of improvement that will help Vanuatu's FDL program better compete with its global peers while helping keep Vanuatu in regulators’ good books.
Moving onshore a "most likely trend"
One key recommendation is the implementation of stronger "economic substance requirements", which would include, at a minimum, a physical office in Vanuatu, a full-time staff, and some amount of local operating expenditure. This means that all FDL holders – there are about 145 at the moment – would need to transition their operations from offshore to onshore, an important paradigm change that represents "the most likely future trend for regulation" according to industry participants interviewed by the authors.
These economic substance requirements would not only provide more guarantees to traders about the sustainability of and accountability of Vanuatu brokers; they would also satisfy a longstanding demand from the European Union, and prompt the removal of the country from the EU blacklists that have for many years impeded the success of its financial industry.
To read the full report, visit FMA.vu