Guest post by Maria Nikolova, ForexBrokerz.com
The Russian Forex industry has been a grey area in terms of state regulation for some 20 years, despite the booming growth of this market: it suffices to mention that the Moscow Exchange posted three records in daily FX trading volumes in April, or that a recent study by Daphnis Group isolated Russia as a top location for trading binary options.
At the end of the day, it’s obvious that Russia’s FX is flourishing in the spring, and as this market develops, it is only natural for the loose regulatory situation to change as well.
Wheels are already in motion, and the changes in the Forex legislation have begun with a bill called “On Introducing Changes in the Federal Securities Market Law and Other Legislation of the Russian Federation”. As its title suggests, the bill envisages legislative reforms that will allow for the state-based regulation of the FX industry in Russia.
The bill includes some very important definitions, including those of Forex and Forex activity. It also stipulates that participants in the FX market would be regulated as dealers, hence they would have to obtain dealer licenses and should have minimum net capital of RUB 35 million ( approximately $1.1 million). The latter is a piece of bad news for small players in the market, as many of them may not be able to comply with this requirement.
But the price of being a Russia-regulated broker is not exhausted with the requirement for the capital: there are also the administrative expenses (about RUB 5,400) for obtaining a dealer license; and then there are the fees for participating in a self-regulatory organization (SRO) – a charge for joining the SRO, a monthly participation fee, and a contribution to a compensation fund.
The trickiest question here is which state authoritative body will be responsible for the FX regulation: true, according to the bill, the Forex sector will be governed by the Federal Commission on Securities Market (FCSM), but its responsibilities are set to be transferred to the future mega-regulator of the Russian financial markets. You may wonder what sort of a watchdog that would be – well, it would be assuming the functions of plenty of institutions and would be based on (surprise!) the Central Bank of Russia.
Contrary to expectations, the establishment of the new regulator and the transfer of powers to it from other agencies and commissions would be relatively fast process, expected to complete in no more than two years.
The bill is already at the discussion table of the Russian Duma (the lower chamber of the parliament) and the deputies are reviewing it this week.
That sorted out, another important question for FX businesses in Russia is put up for discussion: the question of taxes. The bill “On Introducing Changes in the Federal Securities Market Law and Other Legislation of the Russian Federation” stipulates that the FX sector will have to pay profit taxes, which are set to bring as much as RUB 1 billion (about $32 million) during the first three years following the enforcement of the new law. There is no escape from taxes for individuals involved in Forex either – they will have to pay a personal income tax.
On the brighter side, the new bill will allow netting of all sorts of currency derivatives, including those traded on the over-the-counter market – that is not permitted in Russia at the moment. This will help the OTC trading become as competitive as that on official bourses in terms of netting. Adding to the benefits of the regulatory reforms, there will be legal protection for those participants in the FX sector afflicted by illicit activities. The bill also proposes for FX disputes to be settled by an arbitrage court.
On top of this, we should point out that the FX brokers in Russia have long lobbied for state regulation, as they hope this would improve the image of this business segment and would attract more clients. Meanwhile, the sector has to rely on self-regulatory bodies, such as the Financial Regulation Agency (FRA, or KROUFR).
We are left waiting for further regulatory developments: according to plans, the bill for state-based FX regulation will come into effect on January 1, 2014.