Appointed representative. Practical side.

Hello to you all.
As I mentioned in my previous article, ICE FX UK will conduct its initial activities via an Appointed representative (AR) from two FCA-licensed companies.
We are doing our very best to move our business model, embodied in offshore broker ICE FX, to a civilized jurisdiction. The reasoning behind such action is beyond doubt: there are no such companies (Darwinex is not acceptable because the model is different there, although it looks functional) and not all investors want to work in offshore jurisdictions. Many of those who can live with offshore risks are ready to invest huge amounts in our investment products if non-trading risks are minimized.

I. Preface. About the status of an Appointed Representative.

Obtaining a license in the jurisdiction of the UK is a long and rather complicated process. Therefore, it is more advisable to work through an Appointed Representative (AR) for the time being, while submitting documents for our own license, since:

  1. Obtaining a license takes at least 9 months (of course much longer in practice).
  2. Obtaining a license for a company with foreign shareholders and having no history of work is difficult (working through an AR provides an opportunity to gather a working history before filing documents for a license).
  3. An investment broker needs to obtain 2 different types of licenses, which is very difficult (described below).
  4. At the moment, the UK is actively changing its Forex laws and licensing procedures have been suspended.
  5. For clients, working through an AR is no different from working under own license in terms of non-trading risks and paper procedures (somewhat functionally different).

Appointed representative is a status that gives a subsidiary company (a satellite company that received an AR status) the right to work under the license of the company that applied to FCA for distribution of its license to the subsidiary company (principal company):

  • AR status is granted for the same types of activities as ordinary licenses, and represent the right to work under a license from another company “under its responsibility”.
  • AR can extend the validity period of any type of license, of which there are quite many (STP, funds acceptance, asset management, market maker, etc.), depending on which licenses the principal has and which rights from them it wants to grant the satellite company.
  • The Principal files a request with the FCA for AR. After approval (if approved), an entry is made in the FCA registry about issuance of the AR both on the page of the principal and on the page of the satellite on the FCA website.
  • A separate request is submitted to the FCA for distribution of each license and it passes through a separate review.
  • All the nuances of the principal’s license apply to the satellite, including insurance of customer deposits in FSCS.

The theoretical part of issuing/receiving and working with an AR status is well described in Roots-finance. I will describe the practical aspect of its issuance/receipt and application as it relates to the activities of the investment broker (ICE FX UK).

II. Features of ICE FX UK licensing

Creation of a structure that very well copies the offshore model in a civilized jurisdiction is extremely difficult, if not impossible. This is due to the more stringent legislation (the absence of such structures for 30 years of forex existence “seems to hint” at that).
Also, legislation in the Forex industry over the past 10 years are unfortunately being tightened. The MIFiD II legislation that came into force in February 2018 practically buries the idea of combining a broker and public investment service into one structure. As I said in my previous articles, a public investment proposal requires having 2 different types of licenses: STP (brokerage and storage of funds) and asset management (similar to what ICE AM has in Switzerland).
If a single company obtains both types of licenses at the same time (as Darwinex did), this will be viewed by FCA as an increased risk, because such a company can pocket the deposits of investors and, as a consequence, can have an interest in that. Currently, only a few companies in the UK jurisdiction with a long record of service, reputation (well, “you know what else”) have both licenses simultaneously.
Unfortunately, more and more tough “crackdown” in this direction is expected in the future. For example, for about 8 years now, it is generally impossible for a single company in Switzerland to obtain both types of licenses. Moreover, management in an affiliated structure is prohibited.
We are certainly putting every efforts towards implementing the idea of obtaining both licenses. However, we can say right now that it will be impossible to completely transfer the ICE FX model to ICE FX UK.
In addition, everything is complicated by the fact that because Forex legislation in the UK jurisdiction is in a state of almost permanent change, no consultant can confidently say that specific aspects of work can be implemented or not.

Thus, we needed the following:

  1. To register two legal entities for obtaining two types of AR on different legal entities (Ice Quotes and Ice Castle).
  2. To find two companies (AFX Markets and ForexMax) that have FCA licenses for STP and asset management, respectively.
  3. Getting AR status from both companies (well, there is a little less than a year of the previous negotiation process, reviews, refusals and other nuisance).

The data of registers of legal entities and FCA about both our companies and their principals are given below:

Legal entity – satellite Activity/License Principal
Name Register Name Register
Ice Castle Register of Legal Entities Brokerage AFX Markets Ltd. Register of Legal Entities
FCA Register FCA Register
Ice Quotes Register of Legal Entities Asset management ForexMaxLtd. Register of Legal Entities
FCA Register FCA Register

Legally, work will look as follows:

  • Ice Castle functions as a regular Forex broker, and provides clients with the opportunity to deposit/withdraw funds and trade on Forex.
  • Ice Quotes functions as an investment company that manages customer assets. However, it cannot receive funds (exactly the same license as ICE AM in Switzerland).
  • Ice Quotes manages customer funds on the Ice Castle infrastructure (imagine the Swissquote scheme – ICE AM and substitute for Swissquote – Ice Castle instead of ICE AM – Ice Quotes).

Functionally, everything will look much more convenient than working with ICE AM, because:

  • Both companies will be placed on the same site;
  • Both companies will have one trademark − ICE FX UK.

So, when compared to ICE FX activity, the legal scheme differs significantly, but they are almost the same functionally. In any case, this is the only possible way to describe how an investment broker operates under the British legislation (only few people have been able to find a way out for 30 years), so there is nothing to discuss here.

Working Scheme of a client:

  1. The client registers on the ICE FX UK website and accepts the client agreement with Ice Castle. This gives him the opportunity to deposit/withdraw funds and trade on Forex.
  2. The client adds funds to his Ice Castle deposit (PLEASE NOTE! The client personally makes transfers to the AFX Markets account (the principal company of Ice Castle). That is, we do not even have direct access to the client’s funds, while the FSCS insurance available to AFX, is distributed to the depo client).
  3. The client trades on his own (nothing else is required) or accepts the client agreement with Ice Quotes (a management agreement with the second company), which gives him the opportunity to invest.
  4. Settlements between companies are done without involving the client.
  5. Client withdraws funds in the same method as he deposited them.

Next, the features involved in obtaining and working as an AR issued for both types of licenses will be described.

III. ICE FX UK licenses

STP License

This type of license enables you to store customer funds and trade in Forex.
AR for this type of license was obtained by Ice Castle from AFX Markets.

Features:

  • Clients’ funds are stored on the accounts of AFX Markets (Ice Castle does not have direct access to clients’ funds).
  • Clients’ funds are insured for 55,000 GBP (standard FSCS insurance for companies of this type).
  • Deposit and withdrawal methods are regulated by AFX Markets and not us.
  • Clients’ trading activities are carried out at AFX Markets through our website (we serve as a WL).
  • The satellite typically works on the principal’s infrastructure: servers, platform, functional, liquidity and so on.

The last point should be considered in more detail, since in our case it was absolutely impossible to work under standard conditions, for the following reasons:

1. One supplier. In the case of obtaining liquidity through one channel (a prime broker in the form of a principal), the main task of the investment company then becomes to constantly make requests for normal functioning of the infrastructure of the given prime/liquidity provider: feeds failing for 20-30 minutes (streams of quotations), ruptures in communication, requotes for a few minutes, exceeding liquidity limits that never existed before (it suddenly became impossible to open a trade of more than 100 million, because the liquidity provider had run out of money or other clients had opened a lot, and now there was not enough leverage for everyone), and a one-way feed (there are no prices for a bid or ask in the order book) – all these are absolutely normal phenomena when working with any trading counterparty.
I don’t know how some companies work with one supplier. Or to be more precise, I know that for some kind of problem, transactions are simply not executed by the liquidity provider. Given the “scale” of execution of transactions in the industry, almost no one cares about these problems. In the case of independent traders and public PAMM systems, it is quite possible to work this way because the former and the latter constantly lose money and not executing their transactions is a noble cause.
When it comes to working with an investment system with positive results (like ours), it is unacceptable not to execute a transaction. Imagine, for example, that after the release of some non-farm payroll report, quotations stop for half an hour and none of the impulse traders can close transactions. And this happens a couple of times a year, and even more often.
As a consequence, it is absolutely unacceptable to work with one liquidity provider.

2. Infrastructure and functional.
Our investment system is inconceivable without our own functional, since anything that other companies can offer is just standard “worthless” MAMs. That is, there will be no multi-accounts, indices and risk management. You will not be able to enter under open transactions, gather a portfolio with a depo less than 20-25k, and much more.
Consequently, working on someone else’s functional is also unacceptable.

All this has put us in a very difficult situation. In the end, we had to spend about a year searching for a company that does not have its own MT (to put our own with all the functionality) and agree that we will not receive liquidity only through it, but deploy our aggregator (and on other conditions that are absolutely “abnormal” for the UK jurisdiction). Details of this search and negotiations will be omitted. We can only say that it took us about a year, my monthly flights to London, tens of thousands of pounds of money spent, 4 disappointments “5 minutes before a contract was to be signed,” and our consent to the draconian conditions on AR costs and liquidity.
Nevertheless, in the end, the task was solved and we reached an agreement with AFX Markets. We can deploy our aggregator (and are not afraid of the fact that millions of client tools will sink into oblivion due to liquidity provider problem) and deploy the functional that copies functional from ICE FX. I will describe the expected differences between the operation of ICE FX UK and ICE FX in the next article.

Asset management license

This type of license allows you to manage clients’ funds but without the right to receive funds to your accounts.
Ice Quotes obtained an AR for this type of license from ForexMax.

This license is an absolutely typical and ubiquitous funds management license. ICE AM has a similar license in Switzerland and any other asset managers and hedge funds. Ice Quotes will manage clients’ funds in Ice Castle, and both will be under the same brand name (ICE FX UK) and on the same website.
There is nothing more to write about it: it’s quite an easy-to-get license.

Closer to the launching of ICE FX UK, I will provide a more detailed list of differences in the work of clients between ICE FX and ICE FX UK.

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