Offshore licence shopping.

What ESMA actually did

The August 2018 permanent measures, which followed a series of temporary three-month interventions in 2017 and early 2018, capped retail-client CFD leverage at:

• 30:1 on major currency pairs
• 20:1 on non-major currency pairs, gold, and major indices
• 10:1 on commodities (other than gold) and non-major indices
• 5:1 on individual equities
• 2:1 on cryptocurrencies

The measures also required negative-balance protection on a per-account basis, prohibited the marketing of bonuses linked to trading activity, and mandated standardised risk warnings on every retail-CFD communication. Binary options were banned outright for retail clients.

The 2018 measures crystallised in EU law what most of the well-supervised national regulators had already been moving toward independently. The FCA followed with substantively identical UK rules; ASIC introduced a comparable Australian regime in 2021.

The unit economics that drove the response

Pre-2018, retail FX/CFD brokers operating on a "B-book" model — where the broker takes the other side of the client's trade — earned principally from client losses on leveraged positions. The 30:1 cap directly reduced the position sizes that retail clients could support, and the negative-balance protection capped the broker's upside on a single adverse market event.

On the broker's side of the ledger, the 2018 measures compressed margins. Several large European retail-FX firms reported drops in revenue per active client of 30–50% in the first full year under the new regime. The market responded predictably: either by consolidating around higher-quality flow at lower leverage, or by routing higher-leverage retail demand to entities outside the EU/EEA perimeter where the caps did not apply.

The offshore stack

The destinations are now familiar:

• St. Vincent and the Grenadines (SVGFSA) — minimal registration regime, no MiFID-equivalent conduct rules, no investor compensation scheme.
• Belize (IFSC) — international financial services authorisation, used by several Russian-origin and Asian-origin brokers.
• Vanuatu (VFSC) — straightforward authorisation process, popular for retail-FX brokers serving Asia-Pacific clients.
• Seychelles (FSA-SC) — slightly more substantive regime than the above, used as the offshore arm by several otherwise reputable groups.
• Curaçao (CBCS) — historically gambling-oriented, has expanded into FX/CFD authorisation, used by some European groups.
• Mauritius (FSC-MU) — sits a level above the others in supervisory capacity; The Beacon places it at Tier 2 alongside DFSA and KNF (see regulator tiering).

All but Mauritius are Tier 3 or Tier 4 in The Beacon's framework. The supervisory capacity, prudential capital requirement, and ongoing-conduct oversight at these jurisdictions is materially weaker than what an FCA, BaFin, AMF or CySEC licence implies.

How the routing works in practice

The user-facing pattern: a client navigates to the broker's headline domain (typically the brand-name .com), enters an email and country of residence, and is silently routed to the onboarding flow for whichever group entity is licensed in that country. A user registering from Germany lands on the EU-authorised entity, capped at 30:1; a user registering from Egypt, the Philippines, or South Africa often lands on the Seychelles or St. Vincent entity, with 500:1 or 1000:1 leverage available.

The marketing copy across the brand domain typically does not differentiate between which entity the eventual client will contract with. A reader who saw the broker's logo alongside "FCA" or "CySEC" on the homepage may end up bound by a contract with an SVG- registered company, governed by SVG law, with no MiFID-II conduct protections and no investor compensation scheme behind it.

What this means for The Beacon's scoring

The Editorial Practices rubric — one of the two components of the Beacon Score — includes a dimension called Geographic / licence alignment. A broker whose marketing prominently features Tier-1 authorisations but routes a majority of retail flow through a Tier-3 or Tier-4 entity scores low on this dimension. The disclosure of the actual contracting entity, and how prominently it is surfaced to the client during sign-up, also factors into the Marketing transparency dimension.

In the entity register, brokers with operational footprints across multiple regulator tiers are recorded transparently — every authorisation listed in the dossier, with its tier visible, so the reader can form a judgement before signing up.

What to check before opening an account

1. Which entity will I contract with? On the broker's website, this should be findable in the legal documentation or the terms-and-conditions page. If it isn't, that is itself a signal.
2. Which regulator authorises that entity? Cross-check at the regulator's own public register, not on the broker's word.
3. What is the entity's jurisdiction for disputes? Where will the client sue if something goes wrong, and under what law?
4. Is there an investor compensation scheme? FSCS in the UK, ICF in Cyprus, the Investor Compensation Fund equivalents across the EU. Tier 3 and Tier 4 jurisdictions typically do not have these.

None of these checks rule a broker out automatically. They make explicit what the client is actually agreeing to.

Methodology and corrections

This page describes a market structure observable from regulator-publication data and from brokers' own published group-entity disclosures. It does not name individual brokers in the body; the entity dossiers record the per-firm structure. Corrections and right of reply through info@enon.md.