What are offshore brokerage accounts?
You have probably heard about offshore destinations, offshore bank accounts, offshore companies or offshore brokerage accounts. The word “offshore” often means that it is a territory where regulation and taxation are generally light. Offshore territories are very attractive destinations for people who want to “hide money” from their local tax authorities, but it is also very attractive for many companies. Among the companies that sometimes use an (administrative) installation within an offshore territory, there are sometimes forex brokers and binary options brokers. If these start-ups are going to offshore territories to build their business, it’s because it’s easy to register companies, regulations are lax and corporate taxes are non-existent (or very low). low).
Belize, Mauritius, Saint Vincent, and the Grenadines, the Marshall Islands, the British Virgin Islands, the Cayman Islands, Seychelles, Dominica, and Vanuatu are one of the most popular offshore jurisdictions.
The capital requirements of forex brokers
Brokers registered in certain offshore zones must still meet certain conditions in order to be able to exercise their activity, own equity is one of them and this characteristic is supposed to demonstrate the good financial situation of the company. In Belize, a minimum capital of $ 500,000 is required to start a brokerage business, in the Cayman Islands the required capital is $ 100,000 while in Mauritius it is $ 28,000 (1,000,000 MUR ) and Vanuatu, only $ 2,000.
The sums of money required to create a forex broker and install it in an offshore territory are often very low compared to those required in European countries. A broker regulated by the FCA in the United Kingdom, the AMF in France or based in Cyprus and regulated by the CySEC must at least be provided with € 730,000 of equity and respect the preservation of client funds in segregated accounts.
Beware of crooks!
Many brokers based in offshore territories have no financial regulator license and are very often crooks. Offshore jurisdictions allow them to reduce the administrative, financial and local requirements and set up a company that will be used to lead investment scams. Unlike brokers based in the European Union who are supervised by local financial regulators, companies based in the offshore territory have no accounts to report and are not monitored by anyone, free to accept your requests for withdrawals, delete your account or ignore you.
Protecting funds from traders
It is imperative to be extremely cautious about brokers based in offshore geographical areas because the clients of these brokers have no protection. In case of problems with the company, it is impossible to benefit from a compensation scheme with offshore brokers, on the contrary, it is the case with regulated European forex brokers that offer protections to investors.