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How to open a brokerage company – licensing and compliance
Brokerage licensing is a process aimed at ensuring the reliability and transparency of financial markets. It includes not only obtaining formal authorization, but also compliance with a number of strict requirements throughout the company’s activities.
Types of licenses and their peculiarities:
- Dealer’s license: Allows not only to make transactions on behalf of clients, but also to trade for its own account. This requires the company to have significant capital and a thorough understanding of market conditions.
- Broker’s License: Limited to intermediary functions between buyers and sellers. Capital requirements may be somewhat lower than for a dealer license.
- Investment Advisor License: Provides the right to make investment recommendations to clients. Requires highly trained professionals and adherence to strict ethical standards.
Process for obtaining a license:
- Legal entity registration: The company must be registered under the laws of the chosen jurisdiction.
- Application Submission: A detailed application is submitted to the regulator containing information about the company, its management, business plan and financial condition.
- Compliance Check: The regulator scrutinizes all the documents submitted, audits the financial statements and assesses the qualifications of the staff.
- Meeting financial requirements: The company must have sufficient capital to cover potential losses and ensure continuous operations.
- Establishment of an internal control system: An effective system of control over compliance with legislation and internal procedures must be developed and implemented.
After obtaining a license, the brokerage company is under constant control of the regulator. The main requirements include:
- Protection of clients’ interests: Segregation of client funds, regular reports on the status of client accounts, transparent terms of service.
- Prevention of conflicts of interest: Clear division of functions between different divisions of the company, prohibition on the use of insider information.
- Transparency: Regular publication of financial statements, disclosure of material events, providing clients with full information on transactions.
- Combating money laundering and terrorist financing: Implementation and continuous improvement of AML/KYC procedures.
- Cybersecurity: Protecting information systems from cyberattacks and data breaches.
Examples of regulators and their requirements
- US: The Securities and Exchange Commission (SEC) imposes strict capital, staff qualifications and internal controls.
- EU: The European Securities Markets Authority (ESMA) develops uniform standards for all EU member states.
