It has come to my and many other peoples attention that a number of Forex websites have chosen to become regulated by the Financial Services Commission of Mauritius. For those who don’t know much about Mauritius, it is a well known offshore financial center with a number of tax and regulatory benefits. A number of CFD providers have made the decision to become regulated under the banner of the FSC, most notably HotForex.
The choice to become regulated in Mauritius appears to be a rather odd one, as there are many other regulatory bodies that individuals will be more familiar with, such as the FSA (soon to be defunct) and CySec etc. These European based regulatory bodies are all part of MiFID and therefore are allowed to take clients throughout Europe. This is a clear benefit and it should be noted that while different regulatory regimes within MiFID have different degrees of regulation they are all bound by certain European legislation. For example, an investment vehicle is required to be capitalized sufficiently and can receive heavy fines for breaching said regulations. I believe the minimum capitalization requirement of MiFID licensed CFD brokerage for example is 750,000 Euros, of which even the generally considered light touch of regulatory regime of Cyprus demands higher than MiFID mandated capitalization.
I have looked through a number of the documents and legislation which underpin the FSC of Mauritius and much of the regulatory regime appears to be up to scratch. While probably not on par with many of the European regimes there is still sufficient regulation for firms operating under a capital markets licence. In fact the FSC has recently won several awards for being the most innovative financial regulator in Africa (debatable how much of an honor this really is) and it appears that the government of Mauritius has taken at least some reasonable steps to ensure there is some sound financial regulation within the jurisdiction.
Does this mean I would feel safe depositing money with a provider that was regulated by the FSC. My answer would be yes and no. The FSC offers various types of licencing and many of the Forex firms operating under the FSC do not in fact have the more stringent capital markets licence offered by the FSC. But rather are regulated under a Global Business licence which gives the consumer far less protection and is very suggestive that the provider is actually based in another country possibly devoid of financial regulation. In fact to gain a Global Business licence one has to provide evidence that the company is operating outside of Mauritius.
This is the case with HotForex, with the issuing of the licence not:
not vouch{ing] – (i) For the reliability and financial soundness of the products offered or products on which the Company provides its service; and (ii) For the correctness if any statements or opinions expressed by the Company. The licence relates to services on “securities” as defined under the Securities Act 2005, and it does not authorize nor prevent the Company from providing similar services on other financial products.
It should be noted that the kind of regulation that a Global Business licence entails is rather limited and any individual dealing with a company operating with such a licence ‘shall not be protected by any statutory compensation arrangements in Mauritius in any events whatsoever.’
This kind of regulation offered by an FSC Global Business licence certainly falls short of the regulation offered by MiFID members and other well respected regulatory bodies. I would be somewhat concerned about dealing with a company whose sole form of regulation was in the form of FSC Global Business licence. Having worked hard for my money, I would be unwilling to take such risks.
What this example clearly demonstrates is that one needs to investigate the legislation and licence that a company is operating under especially if the said company is operating in an unfamiliar jurisdiction.
