Op Ed: How will Russia’s Forex industry change from October 1, 2015?

The first day of October 2015 is set to be landmark for Russia’s Forex industry, as the bulk of provisions of the Forex law come into effect. Basically, the entire Forex law gets effective on October 1st, with the exception of some tax rules and regulations covering legal disputes among investors and Forex dealers (which is the official designation of companies offering FX services in Russia).

Nothing major will happen

Those expecting queues of broker representatives in front of the central bank in order to apply for licenses, or a draft of dramatic announcements regarding cutting maximum leverage to 1:50, may end up with their expectations dashed.

First, because the Bank of Russia explained that Forex brokers (aka Forex dealers) may service Russian residents until the end of 2015 without obtaining any license. The latter means that brokers do not have to meet the obligations of Forex dealers – that is, no restrictions on leverage are in force either.

paperworkSecond, regardless of the abundance of extra normative acts that the Bank of Russia has issued since the start of this year, there is no practical clarity on what a broker should do to obtain the coveted Russian Forex license. The law says that the Bank of Russia will issue the licenses, but there is hardly a compliance expert in Russia who knows which office in the Central Bank one should visit to file the necessary application.

The same goes for the famous requirement for a Forex dealer to be a member of a Forex self-regulatory organization. At this point, there is no clearcut statement from the Bank of Russia which is the SRO to which an aspiring Russian Forex dealer should turn. Most likely, this is CRFIN, but no one would count on probabilities when it comes to rigid Russian laws.

The Final Countdown

This is not the countdown to October 1st. This is the countdown to January 1, 2016.

Somehow, until that point in time, companies willing to service Russian clients will have to find their way through the spiderweb called Russian Forex regulation and to obtain Forex dealer licenses.

The four main requirements for the license:

  • A minimum net capital of at least RUB 100 million (US$1.52 million). The sum is bigger for companies with customer equity above RUB 150 million. In this case, the minimum capital requirement is RUB 100 million + 5% of the amount of client equity above RUB 150 million.

  • Membership in a Forex self-regulatory organization.

  • Membership in a special compensation fund – this requires an initial fee of RUB 2 million.

  • A Forex dealer is engaged with Forex services only. Banks, insurers, and other participants in the securities market are not allowed to offer OTC retail Forex services.

The Punishment

russiabnkIn case a Forex company does not obtain a license but remains active in the Russian market, it faces a set of penalties. With regard to such companies, the Bank of Russia has the right to:

  1. Take measures to halt the activities of an unlicensed entity.
  2. Publish information on its Internet website about unlicensed operations of a participant in the securities market. The list is updated each business day.
  3. Inform in a written form the company without a license for the necessity to obtain a license and for the deadline to do so.
  4. Conduct reviews of unlicensed activities and file the results of these reviews with the court to raise charges and impose the necessary (administrative) penalties on those responsible for the Law violations.
  5. Address the arbitration court to confiscate all of the revenues generated by the company without a license during the time it operated without a license.
  6. File a claim with the arbitration court to liquidate a participant in the securities market, in case the latter has not obtained a license in accord with the deadline set by the Bank of Russia.

It could be that many Forex companies will simply opt to exit the Russian market voluntarily, choosing a cheaper jurisdiction instead. For some companies this means no change of registration, as most brokers offering their services in Russia are formally registered offshore.

Of course, the Russian Forex law has a raft of advantages for the sector, including improving its reputation. However, if only a handful (or perhaps zero) Forex brokers manage to obtain Russian Forex dealer licenses, then the Forex industry in Russia is set for a future outside of any regulatory oversight. A rather dull perspective that is…

To download the Russian Forex law, in the version signed by Vladimir Putin, click here.

The views expressed in this article are subjective. They reflect solely the opinion of Maria Nikolova, senior writer at LeapRate.

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