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Serenity: Blockchain to replace brokerage license
When choosing a broker company for work on Forex, a stock market or cryptocurrency exchange, many traders primarily seek to find a broker with a license to carry out brokerage activities. As a rule, such licenses (accreditations) oblige a broker to observe certain rules and regulations and, in some jurisdictions, to insure the funds of clients. To some extent, a license improves reliability of a broker company and increases its responsibility towards a trader.
Expensive
There are many countries where brokerage activity is regulated. However, it should be noted that not all licenses are similar. The process and cost of obtaining licenses differ drastically, while the very possession of a license may provide some guarantees or may not provide them. Speaking about regulation in Great Britain, the EU countries, Japan or Australia, brokers in these jurisdictions are obliged to keep funds of their clients separately from the corporate funds, as well as to make contributions to compensation funds that are designed to cover a part of the client’s losses in case of broker bankruptcy. Besides, licensing in these countries requires strict compliance with the advertising and risk disclosure requirements.
The high requirements to the capital of European broker companies, which are measured in hundreds of thousands of Euros, as well as the time frame needed to obtain a license (up to a year), considerably restrict the entry of new companies and hinder effective development of the sphere. Such requirements significantly restrict provision of new competitive service products (for example, PAMM accounts) by brokers and limit the possible leverage level, while increasing the cost of trading for the end client.
Strict restrictions
Sometimes the restrictions imposed by regulators are so strict that it adversely affects the financial sector. For example, the changes in regulation, which took place 10 years ago in the USA, virtually destroyed the Forex industry in the country, and some companies had to wind up, while others had to transfer their business to Europe or other regions.
The MiFID 2 directive taking effect from 2018 in the European Union complicated the life of many retail brokers. And the initiatives, which are currently under consideration and will quite possibly come into force, in the near future may trigger yet another flow of migration of brokerage business to other, more comfortable jurisdictions, including, without limitation, offshores.
Offshore licenses may be obtained much faster, while the requirements to the capital and offered products are by far lower. In some jurisdictions, licensing is not required at all, which is why about 80% of all Forex companies are registered in countries with the soft regulation or no regulation at all.
By some accounts, offshore companies are not reliable, but it is not always completely accurate. Many well-known international brands that manage several companies working under one brand offer their services from brokers registered in offshores.
Classic regulation fails to keep us with the industry
In spite of the whole variety of jurisdictions, experienced traders understand that possession of a license can by no means guarantee a high quality of brokerage services. Regardless of the close attention of regulators, in the pursuit of profit and business cost reduction, brokers may resort to all kinds of tricks, including unlawful use of slippage, market manipulation, adjustments of profit, significant widening of spreads, cancelling of transactions and non-payments under false pretenses. Classic regulation is sometimes not able to prevent precarious or even fraudulent actions in respect of traders. In the sphere with the daily turnover of USD 5 trillion, even now there is no 100% protection of traders from market manipulation and dubious and intricate provisions of multipage contracts. Moreover, if a trader opens an account with a broker located at the other end of the world and a disputable situation occurs, the chances for a fair resolution of the dispute significantly decline.
Over the past few years, many finance industry experts repeatedly pointed out that the classic approach used for regulation of trading services is unmistakably outdated. It clearly lost its efficiency and ability to prevent critical situations. The broker crackdown policy makes the development of the industry impossible, for which reason the business is forced to adapt and move to the grey zone.
An entirely different contemporary approach incorporating the advantages of both the classic regulation and modern blockchain (distributed ledger) technologies has opened new opportunities in this sphere. The first project combining high-technology and classic solutions and efficient ways of protection of traders in actual practice is Serenity.
The modern blockchain based approach to financial regulation
Serenity is a blockchain platform for protection of traders’ interests. The mission of the platform is to create a secure, transparent and standardized space for trading. In order to secure money of traders from fraud, Serenity keeps them under a smart contract drawn up in a way making a withdrawal of funds from it possible only by mutual consent of the trader and the broker. If a dispute occurs between a broker company and a trader, the final word will rest with a Serenity mediator who will thoroughly study the problem and render a binding decision. To guarantee that the decision is transparent and well-founded, Serenity records the digital signatures of the history of the broker’s and the client’s interaction in blockchain. The correspondence of transaction prices to the actual quotations is monitored with the use of information obtained from tens of trading platforms and exchanges.
Blockchain technologies make it possible not only to respond to violations of standards post factum, but also to prevent them. Participation of the Serenity broker company provides a trader with a guarantee of protection from various manipulations, unlawful cancelling of transactions, adjustment of profit or non-payments of profit to the trader.
All of it gives confidence that in the near future the Serenity blockchain platform will become a new industry standard uniting thousands of broker companies from all over the world.
Serenity ICО & Token
Serenity is the first escrow broker-platform for financial markets that protects investors' funds from fraud and trading interferences by using smart contracts.
The project has been supported by major brokers from the Forex and binary option industries, including IQoption, Liteforex, NordFX, as well as Alexey Kutsenko (founder of Tools for Brokers), Yagub Rahimov (adviser of the ICO project nagaico.com and founder of AtoZForex), and many others.
Author: Stanislav Vaneev, Founder of Serenity