The Bahamas is recognized globally as a premiere jurisdiction for financial services regulation.
The Bahamas is a former British Crown colony and its stable parliamentary democracy has been built upon English law. Opening a bank account is not as difficult as other jurisdictions, even those which are EU equivalent. US, UK and European financial institutions view Bahamas-based companies in a positive way; therefore, establishing business relationships is easier. Although it is not the least expensive jurisdiction in which to operate, it is fast, secure and professional. The Bahamas’ highly regarded regulator, the SCB, deals fairly balancing the needs of its financial services community with international standards. (Financial Services is the second-largest contributor to The Bahamas’ GDP behind tourism).
The regulatory body responsible for the issuing of Bahamas forex licences and monitoring financial services activities is the Securities Commission of The Bahamas, also known as the SCB. The Bahamas regulator was established to provide a regulatory framework for all financial companies including forex regulation from rule making and investigatory practices, to powers of enforcement and ensuring statutory conditions are met.
Forex Broker Regulations
A forex broker is the equivalent of “Dealing in Securities” under SCB regulations, also referred to as a “Broker/Dealer”. Specifically, a Registered Firm would receive authorization to carry on Dealing in Securities.
There are two categories of Broker/Dealers: 1) Dealing as Agent and Principal – equivalent to Market Making or having the option to run a B-Book as the client’s counterparty; and, 2) Dealing as Agent Only – limiting a broker’s activities to Straight-Through-Processing of orders in the case of an Agency or A-Book model.
A Broker/Dealer authorization, essentially a forex broker licence, would allow the forex broker to offer Contracts for Difference (CFDs) in forex, commodities, futures and shares to retail and wholesale clients. The SCB has not introduced any leverage restrictions.
What does securities business mean ?
Any person that carries on ‘securities business’ in or from The Bahamas is required to be registered and licensed by the Securities Commission of The Bahamas (the regulatory body responsible for the regulation of the securities industry and capital markets in The Bahamas) (the “Securities Commission”) in accordance with the Securities Industry Act, 2011 and the Securities Industry Regulations, 2012 (the “Act” and the “Regulations”).
The term ‘securities business’ includes any of the following:
a) Dealing in Securities
a) Buying, selling, subscribing for or underwriting securities as agent; or
b) Buying, selling, subscribing for or underwriting securities as principal where the person entering into that transaction:
i. holds himself out as willing, as principal, to buy, sell or subscribe for securities of the kind to which the transaction relates at prices determined by him generally and continuously;
ii. holds himself out as engaging in the business of underwriting securities of the kind to which the transaction relates; or
iii. regularly solicits members of the public with the purpose of inducing them, as principals or agents, to buy, sell, subscribe for or underwrite securities and such transaction is entered into as a result of such person having solicited members of the public in that manner.
b) Arranging deals in Securities
Making arrangements with a view to:
a) another person (whether as principal or agent) buying, selling, subscribing for or underwriting securities; or
b) a person, who participates in the arrangements, buying, selling, subscribing for or underwriting securities.
c) Managing Securities
Managing securities belonging to another person in circumstances involving the exercise of discretion.
d) Advising on Securities
Advising a person on securities if the advice is:-
a) given to the person in his capacity as an investor or potential investor or in his capacity as agent for an investor or a potential investor; and
b) advice on the merits of his doing any of the following (whether as principal or agent):
i. buying, selling, subscribing for or underwriting a particular security; or
ii. exercising any right conferred by a security to buy, sell, subscribe for or underwrite a security.
Firms must be registered to carry on one or more of the categories of securities business discussed above. An applicant for registration must be incorporated or registered under the Companies Act 1992 or the International Business Companies Act 2000. The applicant must have sufficient capacity and resources to carry out its proposed functions: (i) appropriate and sufficient systems and controls to perform its functions and manage its risks prudently (ii) appropriate and sufficient insurance coverage and (iii) standards of solvency and levels of capital as required. The applicant must also be ‘fit and proper’ as defined in the Regulations and meet any such other requirements as may be prescribed.
There are five categories of individual registration: Chief Executive Officer, Compliance Officer, Trading Representative, Discretionary Management Representative and Advising Representative. An individual may only be registered to carry on a securities activity that the firm he or she works for is registered to undertake. The individual must have the education and experience reasonably necessary to perform the securities activity. The Securities Commission has published a list of minimum educational requirements applicable for individual categories of registration. We have enclosed a copy of the Securities Commission’s educational requirements along with this memorandum.
All market participants, subject to certain exemptions, must satisfy and maintain minimum physical presence requirements which shall include the following: (i) have a chief executive officer resident in The Bahamas and appoint at least one director who is a Bahamian resident (ii) keep such books, records and other documents as are necessary and prudent for the proper recording of its business transactions, financial affairs and the transactions that it executes on behalf of others (iii) maintain an established place of business in and operating from The Bahamas and maintain and manage premises and equipment necessary for the administration of its affairs (iv) unless a waiver has been provided, bear appropriate exterior identification of its presence and (v) have public access telephone and list all other numbers, codes, mailing and street addresses. A registered firm seeking to register under the Act to manage securities and/or advise on securities may appoint a managing representative to satisfy the minimum physical presence requirements. The managing representative must be approved by the Securities Commission and must be one of the following: a registered firm under the Act; an investment fund administrator operating in The Bahamas; a financial and corporate service provider; or an unrestricted bank & trust company licensed by the Central Bank of The Bahamas. The Securities Commission will require that the registered firm and the managing representative enter into a service level agreement which details the arrangement between the parties. The service level agreement must cover the matters prescribed by the Securities Commission. In addition the managing representative must demonstrate that it has the requisite knowledge, technical and managerial resources, operational capacity and physical presence requirements to carry out its duties.
What should I do now ?
1. Capital Requirements
A registered firm is required to maintain adequate financial resources in order to meet its business commitments, withstand the risks to which its business is subject and meet the prescribed requirements. A registered firm that is authorized to carry on all categories of securities business is required to maintain a minimum of USD300,000.00 regulatory capital. A registered firm that is authorized to advise on securities is required to maintain a minimum of USD25,000.00 regulatory capital. The term “regulatory capital” includes
a) cash and cash equivalents;
b) money market funds in either Bahamian or US dollar accounts held in The Bahamas;
c) the market value of securities of the Government of The Bahamas less ten percent; and
d) the market value of securities listed on a securities exchange registered under the Act or a foreign securities exchange specified by the Securities Commission less a percentage established by the Securities Commission from time to time.
The Securities Commission has issued a draft guidance note for regulatory capital pursuant to which higher levels of capital depending on the category of securities business are suggested, this guidance note has not yet been finalized however.
Generally, a registered forex broker should maintain adequate financial resources to respond to its business commitments, subjected risks, and the prescribed requirements of the Commission.
a) Dealing as Agent and Principal (Market Maker / B book), is USD300,000.
b) Dealing as Agent Only (STP /Abook) is USD 120,000.
2. Indemnity Insurance
In accordance with the Act and Regulations, a registered firm shall at all times maintain insurance policies, in an amount appropriate to the size, complexity and nature of the securities business of the firm to cover at least professional indemnity and fidelity or, bonding. No registration will be granted if, in the opinion of the Commission, the amount or extent of coverage is insufficient. This requirement does not apply to firms engaged exclusively in advising on securities.
3. Business Conduct
A registered firm or individual is required to comply with the business conduct regulations, rules, orders and directives of the Securities Commission. The Regulations specifically set forth regulations regarding inter alia (i) duties to client (ii) know your client (iii) the requirement to be in possession of a “client account form” before executing any transaction on behalf of a client (iv) the recommendation of the purchase, sale or exchange of securities that are suitable for a client (v) the requirement to have obtained the client’s prior authorization for a transaction (vi) the requirement to make a contract note within one business day upon any sale or purchase of securities and transmit same to the client and (vii) the prohibition of excessive trading of a client’s account.
A registered firm must perform reconciliations as often as necessary to ensure the accuracy of its records and as directed under the Regulations. A registered firm must also keep a client’s cash and assets separate and apart from its own property and on trust for the client.
No person shall represent that the Securities Commission has approved its financial standing, fitness or conduct or evaluated the merits of any security or issuer. No person shall make an advertisement, public invitation or public announcement for persons to invest or engage in a securities transaction unless the advert or invitation (a) contains sufficient relevant information so that it is not misleading and (b) where it is made, issued or published outside The Bahamas it complies with any laws in such jurisdiction, or where it is made, issued or published in The Bahamas and the Securities Commission has given notice that it requires pre-approval, it has been approved by the Securities Commission prior to publication.
4. Filing and Reporting Requirements
Every registered firm shall appoint an approved auditor. The auditor shall make an examination of the annual financial statements of the registered firm in accordance with generally accepted auditing standards and shall prepare a report on the audit in accordance with such standards. The auditor shall also, if requested to do so by the Securities Commission, provide a report on whether or not the business of the registered firm has been conducted in accordance with the provisions of the Act. A registered firm must deliver to the Securities Commission (i) no later than 120 days from the end of its financial year its audited annual financial statements for the financial year and the information as prescribed in Form 13 of the Second Schedule along with the report of the auditor (ii) a copy of the annual report of the auditor on results of the procedures performed by the auditor (iii) no later than 30 days from the end of the first, second, third and fourth quarter of its financial year its financial statement for that quarter and the information set out in Form 13 of the Second Schedule for that quarter and (iv) all reports or other information as the Securities Commission may prescribe.
A registered firm is required to file with the Securities Commission on Form 11 of the Second Schedule together with the prescribed fee information concerning the employment of any individual who will be carrying out securities business on behalf of the registered firm. Similarly, it is required to file on Form 12 of the Second Schedule information concerning the termination, resignation or retirement of any such individual. A registered firm must report to the Securities Commission any change to any of the information provided in the firm’s application for registration no later than 5 days following the occurrence of such an event and immediately upon the occurrence of certain matters specified in the Regulations.
5. Record Keeping Requirements
A registered firm must keep such books, records and other documents as necessary and prudent for the proper recording of its business transactions, financial affairs and transactions that it executes on behalf of others as well as any other such books, records and documents as required by the Securities Commission. The Regulations specify those records that must be kept by the registered firm, which are required to be maintained in The Bahamas, in English, for the longer period of seven years from the date of any transaction or any period set by any other relevant law.
As you may, perhaps, be aware, in order for us to meet our obligations under the money laundering regulations, it is necessary for us formally to verify the identity of all clients of the firm and we would very much appreciate your assistance with this. We will require from each director and shareholder (with more than 10% shareholding or beneficial ownership) in the first instance:
A colour copy of the photo page of the passport certified by a notary public for each director and shareholder;
Address proof certified by a notary public for each director and shareholder;
An original recent utility bill to confirm their address (issued within the last 3 months);
Police Clearance certified by a notary public for each director and shareholder;
A professional reference (from a lawyer, accountant, doctor) for each director; and
Where director/shareholder is a company then we require a certified copy of the constitution documents of the company and above details on each director/shareholder of that company
Curriculum Vitae (CV )
Other Supporting Document upon to SCB’s requests.
Please note for a company listed on a major stock exchange or subject to regulatory supervision in a country with equivalent AML regulations to the Bahamas, evidence of such listing or regulation will suffice in place of the above information. Where the directors to be appointed are employees of such a listed or regulated company, a certified passport copy and confirmation of employment (to include position) will suffice.
Documentation for Securities Business License
In practice, the key to prompt and favorable consideration of an application is the preparation and collation of full information before it is submitted. We can advise on the required information and supporting documentation at the appropriate time. Commercial items that are required (in addition to the formal items) include the following:
1) Bahamas Investment Authority Approval (if Non-Bahamian Principals)
2) Company Incorporation
3) National Insurance Board Registration (Company and Employees)
4) Value Added Tax Registration
5) Business License Application
6) Central Bank Approval (US Dollar and other Forex Bank Accounts)
7) Department of Immigration Work Permit Application(s) (Non Bahamian Employees)
8) Appointment of Chief Executive Officer and Compliance Officer (Minimum Staff Compliment & Must be resident)*
9) Securities Commission of The Bahamas Registration as Registered Firm
10) Securities Commission License Application (*Dealer/Arranger/Manager/Advisor)
11) Securities Commission Registration of each employee (as either Trading Representative Discretionary Management Representative or Advising Representative)*
12) Leasehold Agreement for Physical Presence (Mandatory)*
13) Appointment of Approved Auditor (Audited Reports to be filed 120 days after end of financial year)
14) Central Bank Additional Approvals (e.g. If Non-resident principals et cetera)
15) Optional Membership Applications with local associations (e.g. Bahamas Financial Services Board et cetera)
*we can help you to find the local office and human resources.