The Russian market is very attractive for forex service providers, however operating in this market is very challenging for brokers due to the strict nature of the regulatory framework in the country.
More specifically, the Russian Forex law, which has been instituted relatively recently, stipulates that companies offering Forex trading services have to obtain Forex dealer licenses in case they wish to operate in Russia or target Russian residents. Moreover, to the dismay of many brokers the law imposes strict rules for the marketing of Forex services and also includes demanding provisions with regards to client funds protection and other issues. Furthermore, the Russian law introduces restrictions on the maximum leverage allowed (up to 50x), a limit that is considered too low and restricting by many Forex market participants in Russia.
Obtaining a Forex dealer license currently comes with a tight deadline that ends on 1st January 2016, although there are voices calling for its further extension for another year, i.e. until January 2017. An important recent development came a few days ago when the all-powerful in this domain Central Bank of Russia has announced the granting of the first such license to the first brokerage to actually apply for one, namely Finam Forex (ФИНАМ ФОРЕКС).
Finam had submitted its relevant application a little over a month ago and commentators were positively surprised by the swift processing of the application and the granting of the license in a month, especially since the Russian Central Bank had two months at its disposal to complete the necessary procedures. The speed in which the Russian Central Bank has acted is perhaps indicative of its resolve to put in place and enforce the new regulatory framework for the Russian forex industry, in a much anticipated move.
Commenting on the fact that Finam has become the first Russian brokerage allowed to operate in the country as a foreign exchange dealer under the new regulatory framework, the company’s managing director pointed out that “We welcome the development of a regulated forex dealer environment in Russia, which will permit our clients to reassess the advantages of dealing with a regulated brokerage which is carefully looking after their own interests.”
“The regulation of the market by the Bank of Russia will keep unlicensed companies away from it and will permit to attract a new active set of clients interested in multiplying their investment with a reliable partner as their broker,” he added.
According to information, besides Finam several other companies, including PROFIT (ПРОФИТ), Forex Club (Форекс Клуб) and TeleTrade (ТелеТрейд) have already submitted their license applications with the Bank of Russia. Moreover, another popular company, namely Alpari, has announced on 15 December that it has also submitted its application to the Bank of Russia. Alpari is already a member of CRFIN, which is currently functioning as a Forex self-regulatory body in Russia and this expected to help the favorable examination of its application since being a member of a Forex self-regulatory organization is compulsory under the new Russian Forex law.
- The Bank of Russia wants to be able to change leverage both ways. This means that the regulator would be able to cut leverage below the already tight limit of 50x.
- The Bank of Russia believes that Forex dealers should be allowed to offer their services only to qualified investors. This may lead to Russian Forex companies losing the bulk of their clientele.
- The Bank of Russia wants overseas Forex companies to be subject to the Russian Forex regulation in case their clients use Russian IP addresses.
It remains to be seen if the time is adequate for these companies to also obtain their licenses before the looming deadline of 1st January 2016. Unless an extension is granted, all companies not holding the necessary permission will have to cease their operations and quit the Russian Forex market. With this in mind it is expected that an extension of the grace period will be granted but it seems that it will not come without a cost for brokers.
This is because although the Bank of Russia seems positive to the idea of pushing the deadline back by a whole year, it also appears determined to impose further restrictions on leverage and other issues. According to trusted information, the Bank of Russia is aiming to be able to change leverage both ways. This means that the regulator would be able to cut leverage below the already tight limit of 50x. Moreover, the Russian regulator believes that Forex dealers should be allowed to offer their services only to qualified investors, leading to the loss of the bulk of the customer base of many Russian Forex companies, while it also wishes that overseas Forex companies will have to be subject to the Russian Forex regulation in case their clients use Russian IP addresses.
Things then may not be so rosy and attractive for those wishing to operate in the Russian Forex marker, however the official regulation of the industry in such an important market can only be seen as a positive development. Stay tuned for more as events unfold in the next days.