Forex brokers in Russia to get lowest capital demands in the world?


Amidst the politically tense situation which is coupled by western imposed economic sanctions, Russian authorities appear determined to turn their attention once again on the regulation of the country’s FX industry. A bill regulating the industry was put before the Russian Duma more than a year ago, but the voting and any final decisions on the issue has been postponed ever since. It seems that the procrastination on this subject was a result of different opinions, clashing interests, fear and bureaucratic procedures, but it also appears that now the resolve to tackle the issue effectively comes from very high up, perhaps even from President Putin himself.

One of the reasons motivating Russian authorities to put an effective regulatory framework in place is their strong desire to put an end to the continuing outflow of Russian capital to overseas FX jurisdictions. In order to ensure that brokers will choose to remain and operate from Russia instead of choosing overseas jurisdictions, Russian authorities seem to be prepared to adopt a more relaxed approach towards the requirements, such as capital adequacy, that brokers will need to comply with. What remains to be seen is whether authorities will manage to strike a balance between effectively controlling the industry, safeguarding the rights of investors and giving enough incentives to brokers to remain in Russia and keep their capital in their country.

A major change in the Russian regulatory apparatus is that the Central Bank of Russia recently became the recognized state regulator for all of Russia’s financial industries and ever since it has taken decisive steps to streamline the legislative framework of the industry, starting with the publication in early September of updated lists containing all participants licensed to provide their services in the Russian securities market, accompanied by a special document on the timing of obtaining licenses.

However, the most important and bold move taken by the Russian Central Bank in its new capacity as state regulator, is the approval of an act entitled “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 provides for new minimum capital requirements for all participants in the securities market in Russia, including securities dealers and Forex brokers, who are classed for regulatory purposes as securities dealers.

If this new document gets approved by the Russian Duma which is scheduled to discuss it sometime in October, then it will be a very welcome development for FX brokers because it will mean that Russia will have one of the lowest capital demands for Forex brokers in the world, at a time when brokers were plagued by the very high adequacy requirements in most jurisdictions. According to the proposed new rules the minimum capital requirement for securities dealers in Russia will be only RUB 3 million, which is roughly USD 76,000 or EUR 60,000. To appreciate exactly how low this threshold is, one should compare it to the previous amount demanded which was RUB 35 million in minimum net capital for a securities dealer. If approved, the new level for the minimum capital requirement for Russian FX brokers will be lower than that required in most jurisdictions in the world, apart from offshore zones and significantly lower from that required by Cypriot regulator CySEC, which is one of the most popular jurisdictions, often accused of being too lenient with brokers and which has already attracted numerous financial firms of Russian interests.