"Crypto - FX Broker License Sandwich" Is That a Thing?

Guest Article, by Brad Alexander, CEO of FX Large LLC and Partner at Sun Hill Services LP

October 15, 2022 - As of late, there has been a great demand for setting up new brokerages in the Asia-Pacific region. Along with this, many existing and start-up brokerages have their sights set on South-East Asia due to its centralised location and its cost-effectiveness.

Setting up a new brokerage will involve navigating myriad seas of red tape, banking, and recruitment, so anywhere the process can be simplified is great news for the aspiring broker. Obviously, a key ingredient for any brokerage is its regulatory jurisdiction and its licensing. Nowadays, in our multi-asset world, a broker would need to obtain individual licenses for each asset class offered to its clients. However, there exists a new regulatory option we call the FX/Crypto Licensing Sandwich concept.

The Sandwich License concept gives the broker the option to combine an FX and Crypto license all in one, hence the Sandwich.

Asking Timothy Blanchard of Sun Hill Services LP, "The Labuan FSA presented this concept at a seminar a few years back. We embraced the idea as we felt this would be ideal for our client base. Not only are we providing licenses in an "all-in-one sandwich", but the necessary capitalisation can be sandwiched as well, thereby reducing the financial burden on a startup broker. As an added bonus, this reduces the ongoing costs of administration, management, and substance requirements, which takes a huge load off a start-up brokerage."

The regulatory jurisdiction for this license is Labuan, Malaysia, which is considered to be a Mid-Shore location. Many new brokers may not want the stigma of starting with an Off-Shore license, and may not have the time, financing, or infrastructure to qualify for a traditional license from such entities as the FCA, CySec, ASIC, or others. The Mid-Shore jurisdiction concept was developed in Malaysia and includes tax treaties with 161 countries including OECD countries.

As most of us in the industry know, the advantages of being an Off-Shore entity can be overshadowed by the disadvantages to todays' brokers. For example, the opening of bank accounts for an Off-Shore can be extremely time-consuming, not to mention the marketing stigma associated with this type of structure. As well, a Mid-Shore entity in Labuan pays a corporate tax of only 3%, which is vastly lower than those of traditional economic jurisdictions.

Mr. Blanchard continues, "For a startup brokerage, setting up shop in a Mid-Shore jurisdiction like Labuan doesn't take millions as it would in some other countries. For example, you can set up an FX/Crypto broker with just US$120,000 capitalisation. Ongoing operating costs are also much less, for example, you can have an office with 2 staff for less than US$50,000 per year. This minimal-cost level of infrastructure would be impossible in most jurisdictions."

"In addition to all this, there is still a very large opportunity in this market as it has not been fully developed as with a lot of other markets."

If you have any questions please feel free to get in touch at tim@sunhillassets.com Timothy Blanchard, Managing Partner

Sun Hill Services LP is a UK-based professional license structure company. All applications are overseen and processed by our partner LFSA-regulated trustees.