Why brokers build groups
A broker grows into a group for practical reasons. Regulatory licences are territorial, so serving several regions means holding several licences in several companies. Regulated entities face capital requirements and restrictions on their activities, so it makes sense to keep non-regulated functions such as software development elsewhere. Staff often need to be employed in countries different from where the licences sit. And shareholders usually want a holding company that owns the whole and receives dividends from the parts.
A well-designed group gives each entity a clear job. A poorly designed one leaves entities with overlapping roles, unclear revenue and money moving around without obvious reason. Banks, payments partners, auditors and regulators can tell the difference quickly.
A typical structure
No two groups are identical, but a common pattern for an international retail broker looks like this:
- Holding company: sits at the top, owns the shares in each operating entity and is owned by the ultimate beneficial owners, directly or through their own vehicles.
- EU regulated entity: an investment firm authorised in an EU member state, such as a Cyprus Investment Firm, serving EEA clients under MiFID and passporting where notified.
- UK regulated entity: a firm authorised by the Financial Conduct Authority to serve UK clients, where the group has chosen to operate in the UK.
- Offshore regulated entity: a broker licensed by a regulator such as the Seychelles FSA or Mauritius FSC, serving clients in markets outside the onshore regimes.
- Service company: employs operational staff such as dealing, customer support, back office, marketing and compliance support, and charges the regulated entities for those services.
- Technology or IP company: owns or licenses the trading platform, client portal, CRM and proprietary software, and charges the operating entities licence fees.
Some groups add a marketing company, a separate entity that contracts with introducing brokers, or regional representative offices. Others combine the service and technology roles into one company. The principle stays the same: each entity should have a defined function supported by contracts and real activity.
Who serves which clients
The most sensitive question in any broker group is client allocation. Each regulated entity can only serve clients it is permitted to serve, and it must apply its own regulator's rules to them. The group needs a clear, documented policy on which entity onboards clients from which countries, and onboarding systems that enforce that policy.
Regulators and partners look closely at how clients move between entities. Directing an EEA retail client to the offshore entity so they can trade on lower margin requirements, for example, raises serious concerns about reverse solicitation and circumvention of EU rules. A group that can show its allocation rules, the controls that apply them and the exception reports it reviews is in a much stronger position.
The money that moves between entities
In a functioning group, money moves between entities for identifiable reasons. The common intercompany flows are:
- Service fees: regulated entities pay the service company for staff and operational support, usually under a cost-plus arrangement.
- Licence fees: operating entities pay the technology company for platform access and software, often based on a fixed fee, a per-account charge or a share of revenue.
- Capital contributions: the holding company injects capital into regulated entities to meet regulatory capital requirements or fund growth.
- Intercompany loans: one entity lends to another to cover a timing gap or fund expansion, under a written loan agreement.
- Dividends: profitable entities pay dividends up to the holding company, subject to regulatory capital constraints and local company law.
- Recharges: one entity pays a shared cost, such as an insurance policy or audit fee, and recharges others for their share.
Every one of these flows should be supported by an agreement, an invoice or a board resolution. Transfer pricing rules in most jurisdictions also require intercompany charges to be set on an arm's length basis, which usually means documented pricing methods and periodic review by tax advisers.
Money that should never move between entities
Some flows are off limits regardless of convenience. Client money belonging to clients of one regulated entity must not be used to fund another entity, pay group costs or settle intercompany balances. Each regulated entity's client money stays within that entity's segregated accounts.
Groups also run into trouble when one regulated entity pays costs that clearly belong to another, without a recharge agreement, or when a regulated entity's capital is drawn down by intercompany loans in a way that leaves it below its regulatory requirement. Regulators treat both seriously.
The practical rule is simple. If you could not explain a transfer to the regulator of the paying entity with a document in hand, do not make it.
Banking and payments across the group
Each entity in the group needs its own accounts. Pooling all group payments through one company's account blurs the lines that the structure was designed to draw, and makes it impossible for partners to see who is paying whom.
A sensible setup gives each regulated entity its segregated client accounts and its own corporate accounts. The service company and technology company each hold operating accounts that receive intercompany fees and pay salaries and suppliers. The holding company holds an account for capital, dividends and any group-level costs.
When a group applies to a payments partner, it often wants several entities onboarded at once. Partners will usually assess each entity in its own right, while also reviewing the group as a whole. Presenting a single, consistent group pack with an entity-by-entity breakdown makes that much easier.
A worked example of monthly group flows
The following example is illustrative only and uses rounded figures.
In a given month, the EU entity earns 900,000 EUR in net trading revenue and the offshore entity earns 1,400,000 EUR. After daily reconciliations, each transfers its earned revenue from client accounts to its own corporate account.
The service company invoices the EU entity 380,000 EUR and the offshore entity 520,000 EUR for staff and operations, based on its cost-plus agreement. The technology company invoices each entity a licence fee: 120,000 EUR and 210,000 EUR respectively. The offshore entity pays 260,000 EUR in introducing broker rebates from its corporate account and 75,000 EUR to its liquidity provider in fees.
At quarter end, the board of the offshore entity resolves to pay a dividend to the holding company, after confirming that capital remains above its regulatory minimum. The EU entity retains its profit to support capital requirements for a planned expansion.
Every transfer in this example has an invoice or resolution behind it, moves between named entities and stays clear of client money. A payments partner reviewing these flows can see what each payment is for.
Documentation partners expect for a group
For a multi-entity broker group, a partner's request will usually include:
- A group structure chart showing every entity, ownership percentages, jurisdiction and regulatory status.
- Corporate documents and registers for each entity to be onboarded.
- Licence details and register links for each regulated entity.
- Identification and source of wealth for ultimate beneficial owners.
- Intercompany agreements: services, licensing, loans and recharges.
- Recent audited accounts for each entity, and consolidated accounts if prepared.
- The client allocation policy and the controls that apply it.
- A description of the flows each entity's account will carry.
Keep the group chart current and date it. Charts that differ between documents, or that omit an entity that later appears on a payment, are a frequent cause of questions.
Common pitfalls
Groups that struggle with banking partners tend to share a few habits. They add entities quickly without updating agreements. They run payments for one entity from another's account to save time. They describe intercompany transfers with vague references such as transfer or funding. And they cannot produce the agreement behind a fee when asked. Each of these is easy to fix with discipline, and fixing them pays off in faster onboarding and fewer queries.
When the structure changes
Groups change shape as they grow. A new licence is added, an entity is closed after a market exit, the technology company moves to a different country or a new shareholder buys in. Each change ripples through banking and payments, and partners need to hear about it before they see it in the transaction data.
A short change plan helps. Before the change, list every account and provider the affected entities use, the flows each one carries and the documents each partner holds. Decide which flows move, which stop and which continue unchanged. Update intercompany agreements so that fees and loans reflect the new shape from the effective date. Then tell each partner in writing, with an updated group chart and a brief explanation of what will look different.
Closing an entity needs the most care. Client money must be returned or transferred under the regulator's rules, outstanding intercompany balances settled or formally assigned, and final payments to vendors and introducing brokers made from the right account. Leaving an account open with residual balances and no active business is a common source of later questions from both auditors and partners.
General information only
This article is general information about how broker groups are commonly organised. It is not legal, tax or regulatory advice. Group structures raise questions of regulatory permissions, transfer pricing and corporate law that need advice from qualified professionals in each jurisdiction.
CCYFX supports corporate flows across broker groups, including intra-group treasury, vendor payments and liquidity provider transfers. To learn more, see our page on international companies or CFD brokers.
