Despite its population, there are only four FX dealers licensed to operate in Russia. It is no wonder, therefore, that the number of complaints to the Central Bank for the Russian Federation (CBR) is also extremely low. Compared to today’s figures, cases of fraud used to be really high in the country about a decade ago. This piece explores the changing regulatory landscape in Russia over the decade, especially since the Forex law was passed in 2014, and how the Forex industry in Russia is doing so far.
A brief history of changing FX regulations in Russia
When one thinks of Russia, the typical picture is that of an authoritarian country with zero money related freedoms for its residents. Nonetheless, that has changed with time, and the fundamental purpose for that picture is its history as that sort of country. Today, there are several Russian Forex agents, and they likewise initiated the acceptance of digital currencies in governments. Indeed, Russia was one of the first to build up their enthusiasm for crypto resources and blockchain innovation. (Here is: All you need to know about futures commitments)
Nonetheless, we are keen on Forex exchanging Russia, so the time has come to begin assessing what it is at this moment and how it came to be that way.
In the beginning...
Forex exchanging Russia began with just a modest quantity of merchants participating in it. This changed during the ‘90s when enthusiasm for Forex began taking over the world, and the wave hit Russia. From that point forward, Russian Forex agents and merchants became a critical industry in the country, with the best of them spreading around the world as major players. Even then, the industry still had room to grow further. (You should: Learn How To Use Position Exchanging In The FX Arena For Profit)
As expressed already, Russia had been building up its economy, underlining its part in the worldwide economy. The legislature had found a way to make a genuine market economy, and this improvement prompts certain attention and vulnerability among residents and those looking from the outside in. Probably the best case of this advancement is the manner by which the retail FX trade had got effectively open, as it was previously only accessible by means of open auctions - an extremely crude and muddled strategy for trading FX pairs.
Notwithstanding, 1989 denoted the start of a progression of changes to actuate adaptability for exchange rates, and the Central Bank of Russia opened the first currency exchange in 1992, called the Moscow Interbank Currency Exchange (MICEX). To date, the MICEX is the principal body for governing Forex exchanging. (Can A FX Agent Avoid Sending Trades Directly To The Interbank Arena?)
While there are other Forex regulators in Russia, the Central Bank of Russia is as yet the principal controller with regards to Forex Trading in Russia. As it has the capacity of giving special licenses to banking establishments, it for all intents and purposes sets it to direct the turnover created by the industry in Russia. This means its news and stands impact a large portion of the Forex trade inside the Russian country. (All you need to know about: Options trading)
Much the same as in many nations, each money related action is administered by an administrative body which participates in assessing participants and conditions to guarantee legitimate actions within the market. Other than the CBR, there are two other administrative authorities with regards to permitting Russian Forex merchants other than the Central Bank of Russia. These are the Federal Financial Markets Services (FFMS) and The Financial Markets Relations Regulation Center (FMRRC). (Do not miss: The Best FX Events And Expos To Attend Every Year)
Forex exchanging Russia has seen, to some degree, late changes in guidelines with respect to its primary element, and understanding it is pivotal to comprehend the present market circumstance. The main budgetary controller was the Federal Financial Markets Service or FFMS. It was entrusted to draft guidelines for Russian Forex merchants, which were drafted in 2008. Thereafter, the FFMS was broken up in 2013, and its capacities were passed legitimately to the Central Bank of Russia.
The other body that goes about as an administrator to Russian Forex merchants is the Financial Markets Relations Regulation Center ( FMRRC). However, it is an organization whose capacity totally isolated from the Russian government. Its role is to assess companies offering securities, CFDs, and derivatives. Be that as it may, the FMRRC isn't perceived by the administration, so it doesn't have the power to practice full oversight over the Russian Forex dealers. What it does is to allow issuing a license to its members through its own rules and standards. In this way, it is similar to the Financial Commission (FinaCom) that we described in a previous post. (Find out: What Is The Financial Commission And Can It Be Trusted?)
That implies that the FMRRC can't force sanctions against the dealers under its purview. In response to the dealers who encroach the principles of the permit, their FMRRC license gets revoked. However, the trader is still the one liable for taking precautions. The FMRRC prescribes financial specialists to contact the office legitimately if there should arise an occurrence of any grumblings or doubts on any of its authorized agents. Moreover, the body handles client compensation on its own in the event of agent bankruptcy, much the same as the huge controllers in different places of the world. (Concepts Every Trader Should Understand: Leverage, Margin, and Hedging)
In spite of this, the FMRRC isn't the primary regulator in Forex exchanging Russia because of an absence of trust from speculators as the way toward authorizing has been cited as "questionable" and "not straightforward". What's more, the agreement is that the general look of the controller isn't as expert as required by industry guidelines. Finally, the FMRRC has a business nature, such a large number of doubts ascend from the possibility that it might support a few merchants over others and for the most part ensuring specialists rather than financial specialists. Fortunately, a few dependable Russian Forex representatives have an FMRRC permit, which provides a feeling of security with regards to its permit.
Forex exchanging Russia is viewed as at the top with regards to exchanging innovation, and a portion of the enormous players and dealers of the worldwide Forex industry are thought to have started from the country. All the same, Russia is also called home by a few demonstrated cheats, which is something that makes it a suspicious market for investors. (Do you know: How much money FX agents make?)
What about now?
Although the Russian Central Bank was responsible for issuing licenses to Forex dealers, there was still no specific regulation for the FX industry in particular. The first draft of the current Forex laws was tabled in the State Duma of the Russian Empire (Russian Parliament) in 2013. The issue became critical around that time because the Russian ruble had become susceptible to low liquidity and speculative trading. That crisis threw the CBR into a state of panic that highlighted the problem with a lack of strict regulations. (Do you know: Which Are The Best Commodities To Commerce In The Autumn?)
After the State Duma approved the bill, it was taken to the Federation Council, which is an upper chamber to the Russian Parliament, with the State duma being a lower chamber. The Federation Council approved the bill on the 24th of December 2014 and the bill taken to the president. President Vladimir Putin signed the bill into law on the 29th of December 2014, and the first Forex law in Russia was created.
However, it is important to note that the new regulations would come into effect from the 1st of October 2015, giving brokers until the 1st of January 2016 to comply. Nevertheless, the initial clauses of the Forex law came into effect at the start of 2015, with the final rollout slated for October. (Choose from: The 3 Most Trusted Exchange Authorities in The World)
The clauses that were first to be implemented in January had to do with the definition of the terms ‘securities’ and ‘Forex dealers’. FX brokers in the country would be referred to as Forex dealers, and they would only be permitted to facilitate currency pair trades and not CFDs or cryptocurrencies. It was not made clear if the dealers were allowed to offer binary options, but this industry was not completely outlawed as was done by ESMA in Europe. (These are the: 10 steps of successful arena participants)
When the final October rollout came in October, there were further limitations imposed on the industry. For starters, a leverage cap of 1:50 was set for traders, with the caveat that CBR could lift leverage to 1:100 for some instruments and traders. This was not as restrictive as what we saw being done by ESMA where leverage was capped at 1:30 for major pairs, 1:25 for minor pairs and 1:10 for exotic pairs. Still, it was a big deal for an industry that had become used to high leverage rates. CRFIN is a self-governing board with about 26 dealers listed, and the body is pushing for higher leverage rates with a cap of 1:100 and the possibility of being lifted to 1:200. Nonetheless, the CBR has still maintained the leverage cap at 1:50.
On the side of the brokers, they are now required to have at least RUB 100 million in capital before being licensed. This is equivalent to $1.5 million, but it needs to be even higher for dealers with more than RUB 150 million in client funds. Add to that, the dealer must also participate in a Forex self-regulatory body (SRO) for closer monitoring and contribute money to a compensation fund to the tune of RUB 2 million. The dealer must also conduct internal accounting of all the transactions to indicate that the rules are being followed and report this information. Clients can also no longer sign up online since they will be required to sign up physically at the dealer’s office and present their documents. (Do you know: How Is Spread Betting Different From FX Exchanging?)
As for foreign brokers, they too would have to be licensed by the CBR before signing up clients in Russia. But the rules required by foreign dealers could be considered restrictive even more than local dealers. Aside from having the necessary capital and joining an SRO in order to receive a license, the dealer must also set up physical offices in Russia. Within those offices, the number of foreign staff should not exceed 2, and the company must demonstrate that they have been regulated by another financial regulator for a minimum of 5 years. The two foreign staff members must also be open to security checks by government officials at least once a year. The worst part is the requirement to produce a lot of documents such as recommendations from partner banks, audited financial statements, their licenses from the other regulator and more.
How effective are the new rules?
One does not need to be told that the new rules are quite restrictive, which is why there are now only a few regulated brokers operating in Russia. In fact, many of the regulated brokers are affiliated to Russian banks as only they can uphold all the new rules set forth by the CBR. Some of the currently licensed brokers in Russia are Alpha Forex and VTB Forex. Many notable names in the industry were kicked out such as Alpari, Forex Club, TeleTrade, InstaForex, etc. The result of this culling by CBR has been a reduced number of traders working with dealers regulated by Russian authorities.
In December 2018, the country’s central bank released a statement downplaying the impact of the revocation of the licenses of major brokers. An official with CBR stated that the brokers only had 2,000 clients between them and that only 470 were active traders, bringing the total volume of liabilities to RUB 35 million, which was just 3.7% of the liabilities from all FX traders in the country. The official went on to explain that the numbers were so low because the brokers were subsidiaries of international brokers with very little invested in Russia. In fact, this was one of the reasons several major brands had their licenses revoked. The CBR had noted that client funds were being rerouted to offshore subsidiaries as a way of avoiding strict regulation in Russia. (Have you ever asked yourself: Should You Invest In CFDs Or Stocks To Make More Money?)
The numbers seem accurate, but do not reflect the actual situation on the ground. A document published in November 2018 indicated that there were about 3,539 clients registered with the licensed brokers in Russia. Even so, the number of Russians trading with offshore regulators without a CBR license was 500,000. It clearly showed that the FX industry had not exactly slowed, only that traders were simply relying on foreign brokers who were unlicensed in the country.
That being said, the CBR is very proud of its new Forex laws as we can see from recent reports about fraud rates. After analyzing all complaints it received, CBR reported that it had only received 246,600 complaints in 2019 in total, which was 2.8% less compared to 2018. Of these complaints, 1,000 were regarding securities dealers (30% lower to 2018’s figures) and only 40 were specific to FX dealers. There were 236 complaints in 2015, 210 in 2016 and decreasing rapidly to just 40 in 2019. Since the laws were implemented in 2015, complaints against FX dealers have been consistently decreasing, and it’s not hard to see why. To keep up with foreign brokers, the CBR regularly publishes reports on brokers operating illegally within the country. Today, the number of these brokers stands at 140, and you can bet there may be more.
The CBR is proud of more than just Forex laws since other measures against crypto have been taken. Regarding cryptos, Russian banks have been allowed to close bank accounts related to crypto traders and to mark them as suspicious. This was done in order to crack down on the crypto space in Russia as well as avoiding money laundering. Perpetrators of pyramid schemes face even harsher punishment of RUB 1.5 million in fines and up to 6 years in prison. As you would imaging, financial fraud in Russia has gone down since these rules were implemented in 2016.
What does this mean for the FX industry in Russia in 2020?
Obviously, Russians are still trading in the Forex market despite the tough and restrictive laws that came into effect in 2015. This is probably not going to change unless the CBR takes similar measures with FX transactions as it does with crypto transactions. As mentioned earlier, banks have been given authority to mark any crypto transactions as suspicious, report it to the regulator and even close the associated account. Although this has not been decided for FX transactions, it’s possible the authorities may do the same. But that is a long shot as even the Russian government would be pushing it.
For now, the only remaining avenues for Russians is to accept the new rules or find a foreign broker to work with. Accepting the new rules means being content with the lower leverage, but the advantage is security. Forex laws protect traders from any Forex scams, which are quite common in Russia, meaning that one can feel secure trading even huge sums of capital. We all know the dangers of trading with foreign brokers, but it is possible to find a reliable FX company regardless of being licensed by the CBR. (These are the: Top 10 Most Outrageous FX Arena Scammers)
In 2020, you can expect to see the official number of traders in Russia dwindle as they find reliable foreign brokers with favourable trading conditions. Not only will traders be turned off by the low leverage, but also due to the restriction on CFDs and crypto. For many traders, this will probably become a deal-breaker, and they will seek greener pastures. Tell us what you think in the comments section below.
Regardless of your broker, you must have good strategies for trading the markets, and here’s one that might help you in 2020: