Forex Regulators: Onshore VS Offshore

A broker's regulatory status is an important aspect of the retail forex industry. Operating under a regulatory body's surveillance increases a broker's trustworthiness as it implies that the interests of its clients are getting extra protection.

The regulatory field can be divided into onshore regulated and offshore regulated. Onshore regulations govern the issuance of licenses more strictly, while offshore regulated licenses have more relaxed application requirements.

Onshore regulators are known for strict industry oversight, and they all have one thing in common: a large domestic retail trading market. As a result, they are required to protect the interests of the domestic market. Onshore regulators impose stricter requirements and usually take a longer processing time, and charge higher capital requirement levels and relevant fees (application fees, activation fees, annual fees, etc.). Onshore regulators may also require proof of company existence, a clean criminal record, proof of not being insolvent, and a current tax return. They usually require the physical presence of the company's offices and the company's employees. In many cases, some rights can only be exercised by local residents.

Offshore regulators, on the other hand, face a different situation. These regulators' only incentive is to attract companies to their jurisdictions and profit from their presence. In exchange, the brokers can obtain a licence to provide their services on a global scale relatively easily. The offshore regulatory licensing process is fast (usually a few months, depending on the regulatory jurisdiction) and has lower administrative and operating costs. One reason for this is that most regulatory jurisdictions do not require a physical presence in terms of office space, company directors and shareholders. In most cases, the due diligence/appropriate person principle requirements for companies, directors and shareholders are very simple.

Meanwhile, offshore regulation has very limited reporting requirements for licensees compared to onshore regulation in the areas of capital adequacy and financial position, as well as tax payments. In addition, most offshore regulations do not require financial services to be provided in their jurisdictions, nor do they require that the services be provided only to local residents.

EU member states, UK, US, Australia, Hong Kong, Israel and Russia, are onshore regulated, while Belize, Seychelles and Vanuatu are all offshore regulated.

To learn more about the regulatory status of your chosen forex broker, simply download the free WikiFX mobile application. It is advisable to select a forex broker that is regulated and is operating with valid licenses, and possesses a WikiScore of at least 7.0 and above for its overall credibility.