VFSC licenses have been all the rage lately, especially among FX/CFD brokerages whose standing (financially as well as reputation-wise) is not exactly what one would call top-notch.

Why do such operators flock to the tiny island nation, looking to gain the approval of a Financial Services Commission whose guarantees and regulatory requirements do not really pack much of a punch in any shape or form?

The answer to that is simple: for such brokerages, a Vanuatu license is cheap, quick and it opens up a number of avenues in a manner similar to what more prestigious regulators can offer in this regard.

Here’s what you have to know about Vanuatu’s financial/legal environment: there is no income tax, capital gains tax and inheritance tax in the country.

In addition to that, incorporating a company is extremely quick and much cheaper than elsewhere.

In regards to the regulation of financial activity: a Forex license covering the online activities of a brokerage is issued in 2-3 months, which is indeed extremely fast.

Furthermore, licensing only requires a minimum capital of $2,000, which is great for the operators looking for regulation, but might not be so good for the eventual clients of these brokers. What this essentially means is that pretty much anyone can set up an online brokerage there.

Other advantages that online brokers get out of the VFSC regulatory setup, include the international opening of bank accounts and access to payment processors.

Several brokers have combined their VFSC licenses with an EU-based one (usually CySEC) to create a setup in which a Vanuatu-based and licensed operation can act as a market maker for a brokerage peddling its services to EEA-based customers.

Prior to being turned into the VFSC in 1993, upon the enactment of Act No. 35 by the Vanuatu Parliament, the authority was known as the Registrar of Companies and the Official Receivership Department of the Treasury. It was established under British authority way back in 1971.

The primary function of the VFSC is to keep an efficient Registry. In addition to that, it is also tasked with the overseeing of the non deposit-taking financial industry on the islands. This is where its relationship with online trading industry comes into the picture.

In addition to that, the VFSC is also in charge of administering quite a few pieces of legislation covering anti-money laundering, business names, trust services, electronic transactions, financial institutions, mutual funds, insolvency, trade unions and offshore partnerships – among others.

Protecting the public based in Vanuatu and elsewhere in the world against financial loss is also among the core functions of the authority. It also needs to forward the reputation of the country in the world as a centre for safe business.

The VFSC is the top authority and representative of the country in everything concerning the supervision of financial business as well as its regulation.

The bottom line

The VFSC may not be considered a prestigious regulatory agency for global online financial operators, and the reasons behind that have been made clear above.

Risk Statement: Trading Foreign Exchange on margin carries a high level of risk and may not be suitable for all investors. The possibility exists that you could lose more than your initial deposit. The high degree of leverage can work against you as well as for you.