Few people recognize Vanuatu Financial Services Commission (VFSC). However, VFSC regulation and licenses have become more prominent over the years due to specific reasons.
Nowadays, offshore forex broker licenses have become increasingly popular. Notable destinations include the British Virgin Islands Financial Services Commission (BVI FSC), St. Vincent & the Grenadines' Financial Services Authority (FSA), Vanuatu Financial Services Commission (VFSC), and many others.
These agencies are mostly unknown outside of their respective region. But, why do forex brokers sought after their licenses? To understand this phenomenon, we will try to examine what lies under VFSC regulation for forex brokers and traders.
What is VFSC?
Established in 1993, Vanuatu Financial Services Commission (VFSC) is the financial regulatory authority of the Republic of Vanuatu. Along with the Reserve Bank of Vanuatu, VFSC is responsible to enact legislation and supervisory activities on the following subjects:
- Anti-Money Laundering and Counter-Terrorism Financing
- Business Names Act
- Company and Trust Services Providers
- Charitable Associations (Incorporation)
- Credit Unions
- Dealers In Securities (Licensing)
- Electronic Transactions
- Financial Institutions
- International Banking
- International Companies
- Mutual Funds
- Offshore Limited Partnerships
- and many others.
Up to this point, you might think that VFSC regulation is just like any other financial regulatory agencies. Forex broker companies that have gained licenses from VFSC could call themselves "regulated forex brokers" and carry out services such as forex and stock trading, as well as legally manage investment portfolios on behalf of their clients. However, there are a few caveats that should be noticed by traders.
The Down-Low of VFSC Regulation
Vanuatu is an island country located in the South Pacific Ocean; more precisely between Australia, New Caledonia, New Guinea, Solomon Islands, and Fiji. They gained independence from France and the UK in 1980. Subsequently, they maintain steady development thanks to four pillars of the economy: agriculture, tourism, offshore financial services, and livestock farming.
Providing licenses for financial service companies is an important source of income for Vanuatu. Hence, they have eased the requirements for obtaining permits as much as possible. VFSC regulation enables forex brokers to avoid legal challenges without complicated requirements while enjoying multiple tax breaks and minimum supervision.
In fact, Vanuatu is one of the cheapest jurisdictions to gain forex broker licenses. Online rumors mention that one could establish a legal company simply by submitting an online registration form and paying a fee of USD2,000. A registered company will then be ready to operate in the next 2-3 months.
Unlike more reputable agencies such as US CFTC and UK FCA, VFSC regulation does not require strict supervision and background check for any registered financial services company. The company would only need to submit regular financial reports once a year.
Regardless of what the law says, VFSC does not involve itself in the client protection business. At most, they would release warnings against companies that are found to have repeatedly violated the rules. But if you enter a dispute against VFSC-registered brokers, you could not expect the agency's assistance to mediate or get your money back.
My Broker is Registered in Vanuatu, What Should I Do?
More well-known forex regulators in global financial centers have started to enforce more stringent limits on leverages and minimum capital. Some of them even call for a regional limit; forex brokers should only serve clients who are residents of the country they are registered in. Needless to say, this would negatively affect forex broker companies that operate across borders.
This is the reason why, as regulatory bodies in more reputable parts of the world ramped up their requirements, forex brokers prefer to relocate clients under offshore regulation. Some of these brokers have already pocketed licenses from more reputable agencies in first world countries, whereas some others are providing worldwide services while carrying around VFSC licenses only.
See also: VFSC Forex Brokers
If you are trading with a multi-licenses forex broker, then you could take it easy. Your broker most likely only seeks VFSC licenses in order to smooth their international operation, while providing services in accordance with higher requirements set upon by better regulatory agencies.
There's a significantly different consideration if you are trading with a single-license forex broker (and the license in question comes from VFSC). It is possible to trade with them for some time with minimum capital, but it is not advisable to continue working with them in the long term. Do yourself a favor by moving your funds to better-regulated forex brokers.
As traders, we should always prioritize the protection of funds. It means verifying online reviews and legal safeguards in order to find reputable companies that have established track records and provide sufficient security guarantees. We could not simply believe in whatever our broker says. After all, we could not be 100% sure they would not run away with our money in the future.