The Forex market belongs to spheres with the highest trading volumes, while the daily turnover of FX is $7 billion. Traders all over the world buy and sell assets here. Moreover, retail traders can quickly enter the market with the help of brokerage companies.
As such, the number of Forex prime brokers is rapidly growing every year. Meanwhile, the vast majority of countries have a string of demands for new brokerage companies. Some of them are mandatory, while others differ from country to country. Anyway, newer brokerages are free to get licenses in a wide variety of jurisdictions.
For instance, KYC and AML are some of the essential demands. Every regulated broker needs to operate following the Know Your Customer and Anti-Money Laundering standards.
The basics of KYC and AML
When it comes to the Forex regulations, KYC and AML requirements are considered among the core demands. Let’s take a more in-depth look at these policies and learn why they are crucial for every brokerage company.
KYC is the acronym for “Know Your Customer”. It means that every trader or investor who learns how to start a Forex business must pass the verification procedure. The results serve as proof that a person works in the financial market under their own identity. Such a process also prevents traders from breaking laws (for example, registered traders can’t hide their profit from tax withholding. Moreover, brokerages may block accounts of investors who are suspected of fraud, are subject to sanctions, etc.
AML is short for “Anti-Money Laundering”, and these requirements are tied to the Know Your Customer procedure. There are a specific set of actions to prevent money laundering obtained by illegal means.
When a new trader or investor joins the trading platforms, managers analyze the AML list to understand whether a person is related to criminal activities, financial fraud, and other types of lawbreaking. This is why a regulated brokerage company may block a newer user to prevent possible violations and protect other registered traders.
How do AML and KYC regulations affect the account creation process?
All White Label Forex solutions users understand such demands as one huge pitfall to signing up on a brokers’ website. However, this is wildly speculative. The Forex market is related to highly competitive spheres where brokerages provide exceptional services for newer and retail traders. That’s why account creation must be one of the strong points of the Forex broker.
Brokerages integrate the latest KYC and AML solutions to speed up the sign-up process and make it straightforward. New users need to fill in the personal data, add ID photos and get feedback in a couple of minutes. If some problems appear, applicants may contact the customer support specialists and clarify all details.
Among other things, turnkey FX solutions implemented by a broker remove possible hurdles, making the account creation process faster and more convenient for all who enter the market.
May FX brokers not stick to KYC and AML laws?
Following strict rules is an essential part of starting a cryptocurrency exchange or Forex business. May business founders lead another way? In theory, a brokerage company may welcome all traders and investors with no ID check. How can this choice affect the FX broker in the near future?
- Most jurisdictions have adopted specific rules to prevent possible irregularities. Brokerages that don’t stick to KYC and AML requirements cannot get any category of the Forex license.
- If brokers don’t meet the Know Your Customer and Anti-Money Laundering demands, they operate illegally. In this case, some sanctions from financial authorities are possible. The state officials may block the website and make it impossible to create new accounts.
- In addition to the states’ power, traders prefer to work with reliable platforms. This is why licenses play a vital role, assuring applicants that their rights are well protected.
- Financial fraud is dangerous for any broker. If a company ignores KYC and AML laws, it may end up with a string of limitations, prohibitions and sanctions related to the lawbreaking.
- Sometimes, brokers partner with other platforms or IB brokers. The rejection of KYC and AML requirements makes cooperation impossible.
- Working with reliable payment providers and liquidity aggregators may be unacceptable. Brokers without licenses mostly cooperate with providers, which credibility leaves much to be desired.
As for now, these demands are unavoidable for brokers who want to succeed in the Forex market.
How can Forex brokerage meet the KYC and AML requirements?
When business founders are going to create a crypto exchange or Forex broker, they can pave one the following paths:
- Run a Forex company from scratch solely. This is the way for business owners with years of experience in the FX field. In this case, there is a ready-made team of developers, accountants, lawyers and other specialists. Further, the broker needs to ask for the help of the leading KYC provider, which makes the verification easy.
- Get the turnkey Forex broker. This way requires applying to a trustworthy and experienced company that will help to perform all essential steps. In the end, business founders get a ready-made company that complies with Know Your Customer and Anti-Money Laundering demands.
- Try the White Label trading platform. This way is one of the other most popular among newcomers in the FX sphere. They need to ask for cooperation with a reliable brokerage. White Label solutions cut expenses and use the broker’s license.