Russian c-bank rules out proportional regulation of Forex brokers

Maria Nikolova

Only two licensed Forex brokers are de facto operating in Russia at the present moment, the regulator explains.

The Central Bank of Russia has earlier today published a document about the proportional regulation of the non-credit firms it regulates.

The regulation of many such firms already has a proportional nature, the regulator explains. Put simply, the requirements for a company vary depending on its size (measured by number of clients, for instance) and the type of operations a company performs (as this is directly related to the risks). The proportional approach to regulation has many benefits, including helping foster competition.

Russian Forex dealers (the official designation of Forex brokers in Russia) do not face such a regulatory approach. The central bank explains that the Forex dealers’ activities have just started to develop in Russia and that only eight companies have secured Forex dealer licenses. De facto, only two companies are currently conducting any operations as Forex dealers in Russia.

The proportional regulation is not seen as fit for Forex dealers, the central bank says. It adds, however, that the matter may be revisited.

The Russian Forex law, which was signed by Vladimir Putin at the end of 2014, imposes a heavy set of requirements to companies willing to obtain Forex dealer licenses. These requirements have put off many of those considering to obtain the necessary licenses. For instance, companies willing to offer Forex services in Russia have to secure a minimum capital of RUB 100 million. The required sum may be increased by 5% of the volume of client assets in nominal accounts above RUB 150 million.

Those who have been monitoring the situation in Russia are well aware that there are only 8 companies with Forex dealer licenses in Russia, including local giants like Alpari.

The activity of the Russian “megaregulator” with regard to Forex licensing in 2017 can be summarized as follows:

  • 2 license applications granted;
  • 2 license applications rejected (no names mentioned);
  • 1 Forex dealer license modified.

Recent data shows that 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 smaller number of customers of Russia-based FX brokers when compared to offshore ones is partially prompted by the lack of a legal provision permitting simpler client identification at Russian Forex dealers. An account at an offshore Forex broker, however, may be opened online, without a visit to the company’s office.

In May this year, a new bill was submitted with the Russian State Duma (the lower chamber of the Russian parliament). The bill proposes changes to Russia’s anti-money laundering law. It presents 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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