The Importance Of A License In The Financial Sector

Published on

When we talk about a license we mean a document that is created to regulate the activity of a particular sector. It could be a financial, political, or any other one. Without a license, it is very hard to say that a company is fully eligible to conduct business.

Get The Full Ray Dalio Series in PDF

Get the entire 10-part series on Ray Dalio in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues

Q3 2020 hedge fund letters, conferences and more

License is especially important in the financial sector. A lot of financial entities are created almost every month and most of them lack decent licenses or have no license at all. Of course, this could become a problem in the future.

Licensing is a requirement for financial conduct. The procedure is required to pass a number of companies, including banks, credit unions, factoring companies, pawnshops, investment funds, currency exchange offices, etc. In this article, we will talk about the importance of a license in the financial sector.


You cannot trust a company if it does not have a legal framework and laws that can protect the client. Legitimacy and reliability is especially important in the Forex industry - another very big part of the financial sector. In a modern world where everything is sophisticated and people encounter various Forex broker scams having a high-quality license is an utmost priority. There have been cases where the absence of a license from the regulatory entity caused a huge problem.

Ability to attract more people

When a financial company is created it is also looking forward to attracting more customers, which will bring revenue. Without a proper license, it is difficult to think of new customers, because people’s psychological mindset is always paying attention to a trustworthy company.

Licenses and authorizations

Almost in every country in the world, a national financial regulator is the authorized body for issuing such documents. Only the license of the regulator allows institutions to conduct activities related to assets. There is a legally approved procedure, which is required to pass absolutely all companies. If the organization deals with assets without a license for financial activities, it will face a serious fine.

In order to obtain a license for financial services, it is necessary to apply to the regulator with a package of documents. First of all, it will be necessary to prepare a statement on the established form. The following information should be included in the document:

  • Information about the applicant (name, legal address, details);
  • Application for a financial license;
  • Information about third-party units and branches of the agency that will engage in similar activities.

It is also necessary to specify the list of services that the organization will provide. For example, if an organization needs a license for 4 financial services, they all need to list. The application is submitted together with a package of documents and an inventory. The list of necessary papers may vary depending on what the organization plans to do. In addition, additional documents may be needed to obtain a financial license, which the applicants are required to notify representatives of the regulator. Such requirements are generally made if members of the Commission have doubts about the reliability of the data provided by the enterprise.

The national regulator has the right to leave an application for a license for a financial company without consideration. Often, this is due to an incorrect statement, an incomplete package of documents, or when inaccuracies in the information provided are identified. In this case, the representatives of the authorized body are obliged to inform the applicant in writing. In this communication, members of the regulator are obliged to specify the reasons. Once the problems have been resolved, the company has the right to reapply to the Commission to obtain the document.