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Russia’s State Duma (the lower chamber of the Russian parliament) has scheduled the second reading of the Forex bill for October, with the new legislative piece poised to cement one of the lowest capital demands for Forex brokers in the world.
Deputies in the Russian State Duma are planning to vote for the second time the bill set to impose regulations on the growing Forex industry in the country, with the second reading now scheduled for October 24, 2014. The second reading has been postponed numerous times since June 2013, as the bill has undergone a raft of changes, concerning matters like extra consumer protection and limits on leverage. However, most of the planned changes have not been fixed in documents of legal value: they have remained in the area of speculation and media commentary.
The Central Bank of Russia, which only recently became the recognized state regulator for all of Russia’s financial industries, including securities trading, has acted more decisively. Over the past month it has taken steps to get the securities dealing rules and legislative base in order. At the start of September, the Bank published the updated lists of all participants licensed to provide their services in the securities market and a special document on the timing of obtaining licenses – something that was not clarified in the previous version of the FX bill.
More importantly, the Central Bank has approved a new version of a normative act called “On the norms of sufficiency of proprietary funds of the participants in the securities market and the management companies of investment funds, mutual investment funds and non-state pension funds”. This document sets new minimum capital requirements for all participants in the securities market in Russia, including securities dealers, and Russia’s Forex brokers will be regulated as securities dealers.
Under the new rules, the minimum capital requirement for securities dealers is meager RUB 3 million (USD 76,000/EUR 60,000). The sum is even lower than the EUR 200,000 demanded by Cypriot regulators to set up a Cyprus Investment Firm (CIF). In fact, the minimum capital requirement for Russian FX brokers is lower than that required in most jurisdictions in the world, apart from offshore zones. Moreover, the new demand is negligible when compared to the previous demand for massive RUB 35 million in minimum net capital for a securities dealer.
Among the possible reasons for such a deep cut in capital requirements is the desire of Russian legislators to stop the outflow of Russian capital to overseas jurisdictions. In addition, during the first reading discussions of the FX bill, deputies raised concerns of overly tight regulations looming for the Russian Forex industry that may push brokers away. In particular, the Russian parliamentarians were worried that “another National Futures Association” may appear in Russia.
It will be interesting to see how the desire to impose controls on Russia’s FX industry and protect investors will be balanced with the desire to keep Russian capital within the country. This battle of constraints, fears, ambitions and bureaucracy has kept the bill on hold for quite some time, with different committees and officials proposing revisions and amendments. It remains to be seen whether the second reading will finally happen next month. On the brighter side, the supporters of an introduction of a Forex law are numerous and their ranks include Russia’s president Vladimir Putin.
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