Forex regulation in Russia? – Not earlier than spring 2014

The chief man responsible for FX industry regulation discusses prospects in an interview with a Russian financial news agency.

Amendments to the forex bill were supposed to be discussed in the Russian Duma on the 23rd of October, however we haven’t heard anything about that since. News agency RIA Novosti claims that discussion has been postponed at least until spring next year.

Russian financial news agency Prime has published an extensive interview with the man in charge of financial regulation in Russia – deputy governor of the Bank of Russia Serguey Shvetsov. In it he is asked a couple of questions about the future for forex regulation in Russia so we are delving into his answers to analyze what he had to say.

He starts by explaining the main reason for introduction of forex regulation in the country. According to him the main problem is the lack of awareness of clients about the risks involved in FX trading in general. He is implying that forex brokers should be informing their clients about these risks and maybe even tell them how fast an average person loses his deposit. He concludes: “If after this disclosure a client decides to open an account no one should be forbidding him to lose his money.”

A very one sided vision from Mr Shvetsov here – one can think that FX is an almost certain way to lose money in his opinion. While it is true that statistically the majority of retail clients loses money, it is unclear what makes him imply so aggressively that it is a done deal. One thing is clear – apparently the Russian regulator is aiming at publicizing the percentage of winning accounts at every given broker.

He proceeds with explaining about regulations aside from the already widely known proposal about limiting advertising. According to him, clients have to be informed that the quotes of the broker can vary from those on the central market and companies should make sure that customers’ open orders are always allowed to be closed.

Apparently he is referring here to an alternative method of closing a position aside from electronically, because he mentions “contacting the broker by phone”, obviously in case the customer has no internet access or the broker is having technical difficulties.

He proceeds by saying that “frequently companies are lying to their customers by not allowing them to close their positions”. It would be very interesting to know to which companies he is referring in this sentence but for now it will remain a mystery.

Regarding leverage Mr Shvetsov does not go into many details. While he mentions that the customer is supposed to choose independently what level of leverage will he/she use, it should be tied in some way to the risk tolerance profile of the investor. He concludes that the level of leverage should be tied to volatility of a given FX pair.

We sincerely hope that he doesn’t mean that every pair should have a cap on leverage use, as this will prove to be quite the technological mess, especially considering that market volatility changes in time and it is more or less unpredictable.

In a very important comment Mr Shvetsov states that it is most likely that FX brokers will most likely be regulated under a new license (as discussed in the first version of the forex bill last June) and won’t fall under current categories. Stay tuned to Leaprate as we try to stay in touch with further developments on the Russian regulatory scene.

For a link to the full interview (in Russian) visit Prime’s website.

For more on the global Forex industry see the LeapRate-Dow Jones Forex Industry Report.

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