CySEC advises CIFs on strict rules concerning provision of investment services in Russia

Maria Nikolova

Foreign entities, such as Cypriot investment firms, are not authorized to offer securities services in Russia without the necessary license.

The Cyprus Securities and Exchange Commission (CySEC) has earlier today drawn the attention of Cyprus Investment Firms (CIFs) to certain provisions in Russian laws that impose restrictions on offering securities services to Russian clients.

In particular, the Cypriot regulator directs CIFs to read and comply with Article 51, Section 6.1 of the Federal Law, No. 39-FZ, of 22 April 1996 on Securities Market. Pursuant to this article, foreign entities, their representatives and branches are not authorised to provide and/or perform activities of non-credit financial organisations, inter alia activity of professional securities market participants, as well as provide services of foreign entities in financial markets to unlimited number of persons on the territory of the Russian Federation or disseminate information regarding the said entities and/or their activity among unlimited number of persons on the territory of the Russian Federation.

That is why CIFs are advised to refrain from actions related to misconduct, inter alia from actions aimed at concluding, in the territory of the Russian Federation, agreements/contracts for the provision of investment services and/or the performance of investment activities.

The law that the Cypriot regulator refers to dates back to more than 20 years ago, so it is barely news that investment firms have to comply with the provision that they cannot offer their services in Russia without the required licenses.

But the timing of the CySEC announcement coincides with the recent momentum of the Russian authorities’ efforts to protect the interests of investment firms registered and regulated in Russia. There are only eight Forex brokers that have Forex dealer licenses issued by the Central Bank of Russia. These brokers are facing increasing competition from overseas companies that target Russian clients via Internet, often offering them easier registration procedures and more attractive trading terms, such as higher leverage.

As of May 15, 2018, the number of clients of the licensed Forex brokers in Russia is 3,539. At the same time, there are about 200 unlicensed companies that offer Forex services to Russian clients. These companies usually operate offshore. The total number of Russian clients trading through platforms of brokers that do not have licenses issued by the Bank of Russia is around 500,000. The average deposit per client is RUB 50-60,000.

One of the reasons for the competitive disadvantage of licensed Russian FX brokers is that the current Russian laws lack a provision permitting simpler client identification at Forex dealers. An account at an offshore Forex broker may be opened online, without a visit to the company’s office.

This situation may soon change as a bill proposing a simplified identification procedure for clients of Russian Forex dealers was submitted at the Russian Duma – the lower chamber of the parliament, in May this year. The bill envisages changes to Russia’s anti-money laundering law. It proposes a simpler procedure for client identification when signing a contract with a Forex dealer. The new rules will apply to companies that have Forex dealer licenses issued by the Bank of Russia.

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