Monday, March 05, 2012

Forex companies are now subject to special licenses

The law which overhauls securities legislation has closed the loophole which allowed forex companies oto set up shop in Panama. Effective March 1, 2012, all forex companies - whether they operate inside or outside of Panama - are required to apply for a brokerage house ("casa de valores") license granted by the new Superintendent of Securities.

The abuse by several forex operators was brought to the attention of the authorities which reformed Law Decree 1 of 1999. While forex futures and options could only be traded by licensed companies, spot and cash operations were exempt from licenses. Fines for engaging in forex operations without a license are now of at least US$1,000,000.

Article 44 of the reform defines Forex activity as the operation of buying and selling coins and currency at a price or exchange rate (Foreign Exchange Market) on a recurring basis, and authorizes the Superintendent to develop procedures and special requirements and technology that the brokerage houses should maintain for the exercise of this activity. Some exceptions from the compulsory licensing are granted to government transactions.

Agreement 2 of 2004 has the requirements for the brokerage house and now the forex license. Applicants must have a paid-in capital of US$150,000, as well as:
1. Be exclusively dedicated to activities related to the broker-dealer house business.
2. Articles of Incorporation which have a corporate purpose adequate to the activities related to the broker-dealer house business and social capital of at least US$150,000 in registered shares.
3. A Board of Directors or its equivalent composed by at least three individuals (no corporate directors), all of them individuals of "proven business and professional integrity. At least one third of the members of the Board of Directors shall also possess knowledge and experience in subjects related to the stock markets or the financial sector in general.
It shall be understood that individuals with a record of respect for the commercial laws and other laws regulating the economic and business activities, as well as good business and financial practices, possess commercial and professional honorability. In any case, it shall be understood that individuals lack such honorability, when the individual is under one of the causes of incompetence to hold offices, pursuant this Agreement. Only individuals who have performed duties as principal executives or other similar responsibilities in other public and private entities for a period of at least 2 years, are deemed to have appropriate knowledge and experience.
4. Have the number of principal executives that the broker-dealer house business volume requires, who must have the corresponding licenses issued by the Commission. Every broker-dealer house must at least appoint one person as Principal executive.

The 2001 Supreme Court Schedule sets attorney fees for this type of license application of at least US$5,000. Registration fees for a brokerage house are of US$5,000. On a yearly basis a supervision fee must be paid to the Superintendent equivalent to 0.0025% of yearly trades (min $5,000.00 max. $100,000.00).

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