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New Legal Framework for Forex and CFD Brokers in Bahamas

Jun 03, 2020

Bahamas is one of the most popular destinations for foreign exchange and CFD brokers, with the nation’s regulator - the Securities Commission (SC) of The Bahamas, is about to introduce a set of new regulations which stipulates leverage restrictions.

Proposed regulation has been highlighted by the Government of The Bahamas on the 27th of May 2020. The SC will be implementing leverage restrictions of 200:1. A maximum 200:1 leverage will be applied to all underlying Contract For Difference (CFD) assets except for crypto-currencies which the watchdog will establish on a case-by-case basis and brokers will need to ensure a retail client account’s net equity does not fall below 50 percent.

New regulation stipulates that trading in binary options will be prohibited for retail clients. Also, the SC will put limits on retail incentives, where enticements and bonuses will be prohibited, and negative account balance security will be required. In relation to these changes forex business participants will be required to assign responsible person who will supervise the company and will ensure the company remains in compliance with the law. Additional reporting requirements will be implemented specifically regarding CFD transactions, as well as standardized risk warnings and formats, which is similar to requirements introduced by the European Securities and Markets Authority (ESMA). Taking example from ESMA, and from other European regulators who have largely followed its lead, the SC has cracked down problems that they deemed important– aggressive marketing and other bad practices, without having to significantly reduce leverage.

In order to find better trading conditions, lot of forex traders began to leave Europe due to ESMA implementations which restricted leverage and marketing activities. As the result, many traders ended up obtaining license from the SC of the Bahamas. Taking into account the progress of these events, the online trading has flourished over the past few years in the Bahamas and this has been only beneficial for the country. New rules are considered as more sensible than in Europe, but not as loose as most offshore jurisdictions which creates more friendly conditions for brokers and their clients. Such precautious changes have created to an environment, which balances safety and opportunity.

Andrew Rolle, Executive Committee Member of the Bahamas Investment & Securities Business Association (BISBA), commented these changes and said that the aim is to help shape a regulatory environment where industry thrives within the context of protecting the jurisdiction’s reputation. The new rules are intended to satisfy consumer’s demands for protection and encourage more brokers to choose the Bahamas as their jurisdiction of choice. For the Bahamas, this leads to securing growth within the securities industry and jobs creation.

According to regulatory changes, the SC will allow professional clients who will not be subject to minimum margin requirements. A CFD firm can designate a client as a professional client only after the company has evaluated the client to identify their expertise, experience, and knowledge of CFDs and ensure that they understand the nature of the transactions or services. It will be required for professional clients to meet two out of three following status:

  • The client has carried out transactions, in significant size, on the relevant market at an average frequency of 10 transactions per quarter over the previous four quarters;

  • The size of the client’s financial instrument portfolio, including cash deposits and financial instruments, exceeds $500,000;

  • The client works or has worked in the financial sector for at least one year in a professional position, which requires knowledge of the transactions or services envisaged.

The regulation changes in this form will have a positive effect on industry within Bahamas and will further put the country as a serious at the same time friendly jurisdiction for trading. From our point of view these changes could give not just a positive impact on local industry, but it could be a positive effect on forex industry as a whole, because other jurisdictions with loosely defined CFDs could follow Bahamas example.

However, despite the fact that Bahamas could sound as a good destination for FX business activities, there are still countries in the world where you can obtain the license for FX service, without any leverage restrictions. We are able to offer you the license obtaining service in countries like Mauritius and Seychelles where no leverage restrictions are applied for FX brokers.

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