Lowdown on Financial Licensing in North America | DesFran

Lowdown on Financial Licensing in North America

The permeation of technology did not leave the finance industry forlorn – the rise of financial technology (FinTech) initiated a complete overhaul in the financial services sector. P2P, or peer-to-peer lending as well as microfinancing have fostered a high degree of inclusivity and shaken up the industry enough for regulatory bodies to begin their intervention through licensing regulations. In countries in North America and regions such as the US, Canada and the Caribbean islands, financial authorities have interceded by conjuring regulations that could make financial licence application even more laborious and laden with paperwork.

Yet, the parallelism between regulatory updates and industry progression is exceptionally important for the upkeep of the state’s competitiveness in the global financial scene. Concomitant with these regulatory changes are the evolving requirements that companies have to keep up with in order to obtain relevant licences for their businesses. This article presents North America’s financial supervisory authorities and their licensing architecture from Canada to the US, extending to the Caribbean Islands. DesFran’s series of informative articles on financial licensing are dedicated to equip our readers with insights on the selection of international financial licences that are laced with knowledge from our experts.

The Region of North America and Licensing

When considering financial licences, there are prominent trademark authorities that resound around the globe. The Cayman Islands Monetary Authority (CIMA), National Futures Association (NFA) of the United States, and the Financial Services Authority (SVGFSA) of Saint Vincent and the Grenadines are all eminent regulatory authorities around the North American region. Licences from these authorities are amongst the most popular for companies seeking and pursuing licences. Cayman Islands of the UK is a global financial centre that attracts offshore company formations and investments from far and wide with their diverse assortment of financial licences. Read more about licensing in Cayman Islands here.

The SVGFSA is a selective authority close to the continent of North America with stringent codes of regulations which it adheres to for  ensuring the quality of its licensees. Companies that have feigned licensing with the SVGFSA and identified as International Business Companies (IBCs) have been historically confronted and singled out. An SVGFSA-licensed company has gone through a demanding selection process; the authority ensures a level of competency and compliance in their licensees. SVGFSA stipulates that they do not extend their regulations beyond international financial services and local non-bank financial intermediaries; all companies under the supervision of the authority must also comply to relevant international commercial laws,

Financial Licensing Industry in the US

The finance and insurance markets accounted for USD1.5 trillion of the US gross domestic product in 2018. It is truly an industry that supports the country’s growth, creativity and competitiveness. The National Futures Association (NFA) of the US, one of the defining financial hubs in North America, is a self-regulated organisation in the futures and derivatives industry that guarantees transparency within its members and safeguards its stringent regulations by ensuring the compliance of regulated firms and individuals. Notably, the NFA does not ‘license’ companies or individuals but registers them as members, thereby authorising their financial services.

MingWen Teo, Chief Financial Officer (CFO) at DesFran, shares that despite the reputable standing the NFA has in the global licensing landscape, its “onerous” regulations “could be even stricter than those” of the UK’s Financial Conduct Authority (FCA) and the European Economic Area (EEA). These regulators, especially the NFA, have consistently prided themselves in their rigorous regulatory frameworks and these are coincidentally what constitutes their attractiveness to financial services business-owners. Deterrents of licence application then boils down to the “high cost of application and compliance”, resulting in comparatively less companies seeking the NFA’s registration. As DesFran’s CFO, MingWen divides and dedicates his time amongst the various offices of DesFran and has developed an astuteness when it comes to financial licensing, be it in North America or any other regions.

Financial Licensing Industry in Canada

Individuals in Canada are mandated to meet numerable criteria to obtain relevant licenses for engagement in financial services. These criteria range from education to employment and work experiences. Expectedly, licensees are also required to take further educational courses, or continuing education (CE), to maintain and keep the licence. The Investment Industry Regulatory Organization of Canada (IIROC) is the securities regulatory body in Canada. In addition to execution of requirements, the setting of proficiency requirements for firms and individuals selling securities are also managed by the IIROC.

The authority has recently introduced some proposed revisions to their CE programme, drawing inevitable frustrations from the industry. The revisions include a late filing penalty fee that is  imposed on dealer firms that fail to report CE credits of their advisors within 10 business days of the end of a cycle. Another proposition was advisor suspension in addition or in replacement of the fees in circumstances of credit reporting beyond the last business day of January. These propositions were met with less-than-optimal enthusiasm by licensees.

Obtaining a Financial Licence

Applications for these licences often require the seekers to examine the supervisory authority’s jurisdiction, application timeline, as well as monetary resources needed. The stringent processes could distract and deter some, but experts at DesFran are available to solve these problems. Contact us today for a free consultation.

Teo Mingwen is the Chief Finance Officer of DesFran. With over 10 years of experience in the finance industry, Mingwen has deep expertise in regulatory requirements, operational procedures, global business development, corporate regional governance, and FX-related sales. Mingwen was formerly Executive Director for Blackwell Global Investments (Cyprus) Limited, and developed growth strategies, business development plans and client engagement for the company.

Mingwen holds a Bachelor’s Degree in Accounting and Finance from Singapore Management University.

References

Financial Services Spotlight. SelectUSA. 

About NFA. National Futures Association.

Licensing. Canadian Securities Institute. 

About the Authors

Alin Liu is Research Analyst in DesFran’s Strategic Communications and Research team. Alin has extensive knowledge in information search, mining, and analysis. With her wealth of experience in the finance industry, she has been researching and publishing market insights for DesFran’s clientele in China. Alin graduated from Yangzhou University with a Master’s degree.

Joyce Sun is Strategic Communications and Research Intern at DesFran. Joyce enjoys learning as she writes financial news blurbs and editorials involving financial regulatory developments due to her keen interest in equities and finance-related topics. She is a final year honours student at the National University of Singapore hoping to pursue a career in the finance industry, and to continue developing her knowledge in investments.

 

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