The regulatory landscape of the forex and options industry is about to get a huge change in the Bahamas. It is one of the most popular offshore destinations for forex and CFD brokers. The country's regulator, the Bahamas Securities Commission, is preparing to implement a raft of new regulations and restrictions, including leverage restrictions.
The country regulator will implement Leverage limitation 200:1 , In addition to Binary options trading ban completely. The regulator will also impose marketing restrictions, which will limit cold calls and other aggressive marketing tactics.
According to the document, the Bahamas Securities Commission will require a minimum margin of 0.5 percent and a maximum leverage of 200:1 will be applied to all underlying CFD assets except for cryptocurrencies which the agency will place on a case-by-case basis and brokers will have to ensure Ensure that the net IQ of the retail customer account does not fall below 50 percent.
Binary Options and Bonus
Binary options trading for retail clients will be banned, commission will set restrictions on retail bonuses, temptations and bonuses will be prohibited, and negative balance protection will be required. Furthermore, CFD companies will be required to register the person responsible for overseeing the company, who will ensure that the company remains legally compliant.
There will also be additional reporting requirements specific to CFD transactions , in addition to standard risk warnings and formats, similar to those implemented by the European Securities and Markets Authority (ESMA).
The Bahamas follows in the footsteps of ESMA
The Bahamas is benefiting from the offshore boom after ESMA implemented its product intervention measures, which severely limited leverage and restricted marketing, and traders and brokers started leaving the continent in search of better trading conditions. Many of them ended up in the Bahamas, which resulted in a number of brokers obtaining licenses from the Bahamas Securities Commission. Although the offshore country has a regulatory framework, up to this point, CFD trading is loosely defined.
As a result, the online trading space has boomed over the past few years in the country. This was a benefit to the country. Which is highly dependent on tourism, in terms of economic diversity and employment opportunities. Andrew Roll, Executive Committee Member of the Bahamas Investment and Securities Association (BISBA) said: “Our goal is to help shape a regulatory environment in which the industry thrives in the context of protecting the reputation of the jurisdiction. The new rules are intended to meet consumer demands for protection and encourage more brokers to choose the Bahamas and for the Bahamas, this will secure growth in the securities industry and create jobs.”
However, this prosperity has led to the regulator's desire to create a balanced environment between safety and opportunity. Inspired by ESMA, and other European regulators that have largely followed in its lead, the SEC decided to crack down on what it believes to be the real villain - aggressive marketing and other bad practices, without having to significantly reduce leverage. Jim Manzak, Director of Bahamas Marine Services said. “A set of rules makes more sense than the EU, but not as loose as most offshore jurisdictions. I am curious about the reaction of customers and brokers.”
The regulator will allow professional clients not to be subject to the minimum margin requirements. A CFD Company can only designate a Client as an Optional Professional after the Company has tested the Client to determine their experience and knowledge of CFD Contracts and to ensure that they understand the nature of the transactions or services. According to the document, the customer must choose to have this status and must meet two of the following criteria:
- The customer made large volume transactions in the market
- The portfolio size of the client's financial instruments, including cash deposits and financial instruments, exceeds $500,000
- The client has worked in the financial sector for at least one year in a professional position.
Will other offshore authorities follow suit?
It may be unclear now what other offshore authorities are thinking, the regulatory changes by the Bahamas already show a commitment to the forex and CFD industry within the country, and will increase the country's legitimacy as a serious but friendly jurisdiction. However, it will be interesting to see what the larger implications of this regulation will be for the FX industry – will other offshore jurisdictions follow suit, or will the Bahamas lose its position as one of the most attractive offshore states for brokers?