Popular Forex brokers like IQ Option, Olymp Trade and Binomo stop accepting new customers from Russia. New regulation will dramatically change the Forex industry in 2020.
During the last few years, Russia’s forex industry has grown in leaps and bounds as hundreds of operators flooded the market and gave Russians a new way to make money from their investments. Just like every other forex market in the world, a number of unscrupulous forex operators also launched services in Russia and conned a number of Russian investors.
According to a report in LeapRate.com, an online trading news portal, Russia has more than 200 Forex brokers serving more than 100 million Russian traders. The figures indicate not only a rise in the number of brokers, but also a rise in the number of traders and investors.
This made it necessary for the Russian government to create new rules and modify existing ones to increase transparency within the industry and provide better protection to Russian forex investors. However, there were still loopholes with forex regulations in Russia and scam artists continued to exploit them by offering lucrative forex proposals to Russians who wanted to get rich quick.
Russia’s Financial Regulatory Bodies
One of the main reasons for the rise in the number of Forex related scams in Russia was due to the absence of a strong regulatory body in the country. The scams just got worse as the years rolled by, forcing government bodies to equate Forex with gambling. Sergey Shvetsov, the Central Bank of Russia’s vice chairman, referred to Forex as a “casino” and Forex trading as “gambling.”
Victims suffered the most because of the absence of directives as nobody could come to their rescue. Reputed Forex brokers also suffered as potential traders and investors viewed them with suspicion. The most innovative of them decided to create an independent, self-regulating body, called the Financial Arena Relations Directive Center (FMRRC) in 2011.
The FMRRC began issuing certificates to reputed, reliable, and legitimate Forex brokers. Serious investors finally found a way to separate the good brokers from the bad ones. But the very self-regulatory and independent nature of this body turned out to be its major drawback as the Central Bank of Russia refused to recognize it. It made the FMRRC more of a certifying body than a regulatory body, and it was just a matter of time before the FMRRC lost its credibility among brokers, traders, and investors.
Fortunately, the government of Russia decided to regulate the Forex trading industry in December 2014. The Russian Forex law as brought into effect early in 2016, forcing Forex brokers to either comply or face prosecution.
Russia’s Early Forex Laws
Russia’s early Forex laws dealt separately with individual traders and Forex brokers. Their major goal was to curb scam and increase transparency; and to achieve this goal, they permitted only licensed brokers to operate within the country.
According to these laws, Forex brokers are required to become members of the Association of Forex Dealers (AFD), a self-regulatory body endorsed by the Central Bank of Russia. Reputed dealers such as Alphari, InstaForex, Forex Club, TeleTrade, Trust Forex, FINAM FOREX, and others were the first to obtain a license. The laws permit only licensed dealers to advertise their products and services to Russian traders.
To obtain a license, dealers are required to hold a net capital of at least RUB 100 million. Dealers holding over RUB 150 million in client deposits are required to hold a larger net capital to obtain a license. The law also requires dealers to deposit RUB 2 million into the AFD. Moreover, Forex brokers have to set up offices in Russia to deal with trader complaints.
Foreign Forex brokers who wish to set up their business in Russia should show five years of industry experience. Also, their foreign regulator needs to be based in Europe.
Russian Forex brokers operating under a license issued by the Central Bank can offer trading only in currency pairs, not CFDs and binary options. Moreover, they cannot take their leverage over 50:1.
140+ Illegal Forex Brokers Detected in 2019
Despite the above-mentioned regulations, the Central Bank of Russia identified over 140 illegal Forex brokers in the first half of 2019. Most of these illegal brokers were registered overseas and used foreign payment systems to transfer their funds. They did not even have a license from the Central Bank of Russia.
These brokers took advantage of Russian citizens’ lack of knowledge regarding regulatory matters. They gave their gullible clients the impression that they were profiting a lot and encouraged them to invest more money. However, when traders attempted to withdraw their profits, the company set their balance to zero and stopped responding to their emails.
Basic Standard – New Rules for Russian Brokers in 2020
Feeling the need for a change in rules to weed out unlicensed Forex brokers, the AFD created a Basic Standard, which received the approval of the Central Bank of Russia on January 10, 2019 and was enforced on April 1, 2019.
According to these new rules, Forex brokers have to publish complete details on their website about their name, membership in self-regulatory organizations, the names of its agents, and its refund policy in case of insolvency. They also have to provide detailed guides on how their clients can complain in case of issues.
The new rules make it mandatory for brokers to keep their clients informed about the various risks they may have to face after signing a contract. These risks include risks of loss and/or any expense regarding meeting the obligations of the contract. Brokers have to make this information absolutely clear for all clients, including those who know nothing about the financial markets.
The new rules also prohibit Forex brokers from implementing objectionable policies such as widening spreads even when market situations do not require it. Brokers have to review traders’ complaints within 15 days of receiving them. If the complaint requires more scrutiny, they may request extension of up to 30 days.
All Forex brokers operating in Russia as well as their agents are required to comply with the above-mentioned basic standards. The new rules make brokers responsible for any act of non-compliance on the part of their agents.