In a recent announcement, Markets.com joined the growing list of brokers receiving regulation from South Africa’s Financial Services Board (FSB). The new license for Markets.com (part of Cypriot SafeCap Securities) marks a trend among forex brokers to be fully regulated in South Africa. We earlier saw Saxo Bank open a Johannesburg office earlier this year. These brokers join to name a few, ACM Gold, one of the biggest players in the African continent who holds a full license for over a year as well as a network of local offices, as well as Bulgarian DeltaStock, in the growing list of foreign based brokers receiving FSB regulation.
The appeal of South African regulation is twofold; it can be used as a ticket to marketing to all of Africa as well as solving regulatory issues.
On the regulatory front, the interest in being licensed with the FSB occurs after a clamp down by the regulator against South African IBs. While the FSB allows for citizens to open accounts with foreign brokers, it is illegal for local IBs to market to South Africans and direct them to non-FSB regulated brokers. As a result of a rise of complaints from local clients to the FSB about fraud and aggressive marketing practices from IBs, the regulator investigated the matter and discovered that many of these “problem” firms were sending clients offshore. This caused the FSB to reach out to the regulators of the foreign brokers who provided lists of South African IBs that were sending business to non-FSB regulated entities.
The end result was the issuance of fines to local IBs as well as a scramble by them to find new destinations to send their business to. As such, receiving FSB regulation provides foreign brokers the ability to reinitiate relationships that they might have lost due to the IB fines, or win new business from IBs.
Another advantage of a local presence is the ability to offer onshore deposits to South African clients. With the country imposing limits on the amount of cash that can be sent offshore without incurring taxes, the local deposits are in demand from local traders.
In addition to the local benefits, FSB regulation can also be used by brokers to create a presence within the greater West Africa region into countries such as Botswana, Zimbabwe, and Zambia.