Belarus is not the first country that comes to mind when you think of the retail trading industry. Ruled over by Alexander Lukashenko and his golden gun-wielding teenage son, the eastern European country is a long way from the City of London’s glossy, glass towers and Cyprus’ air-conditioned offices.
And yet, since the beginning of April, four firms have received a regulatory license in Belarus, taking the total number of brokers regulated in the country to 13. Finance Magnates understands that other brokers are also mulling applying for a license or are in the process of doing so.
Speaking anonymously, an executive at one broker, whose firm has applied for a license, said that the sudden interest in the country is due to events in Russia. As many of our readers will know, the Russian government cracked down heavily on foreign exchange brokers at the end of last year.
Citing customer protection and offshore ‘irregularities,’ Russian authorities effectively forced all retail brokerages in the country to close. Only three major banks, all of which have connections to the government, are now able to provide leveraged trading to retail clients.
“The move to Belarus is really happening because of Russia,” said the brokerage executive. “Things are getting tough there, tougher than they already were, and people see that Belarus is close by and has more relaxed regulations – so why not move there?”
Easy, but not that easy
Setting up shop in Belarus is simpler than getting regulated somewhere in Europe. Still, it’s not as easy as opening a bucket shop in St Vincent and the Grenadines.
Capital requirements hover at around $100,000, and brokers must have a client compensation fund. Risk management rules are also rigid, and firms are not allowed to act as counterparty if it means exposing themselves to losses greater than their own capital.
And though wild west regulations in Russia may be a part of the reason brokers are looking for a license in Belarus, that’s not the whole story. From a more pragmatic point of view, the country is a rich source for tech-savvy programmers who can be hired for much less than their western European competition.
In fact, much like Ukraine and, to a lesser degree, Russia, Belarus is fast becoming a hub for companies that want to outsource the upkeep of their technology services to a cheaper labor force.
“Belarus is well known in the region as a country that can provide strong IT expertise,” said Ivan Gowan, the CEO of retail broker Capital.com. “We already had a strong team of developers in the country, so it was logical for us to expand here and acquire a Belarusian license.”
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Expansion was a common theme amongst the brokers that Finance Magnates spoke to. But as wonderful a place as Belarus might be, it has one of the lowest levels of GDP per capita in Europe and a population of less than ten million. Hardly the sort of place that is going to make a company rich.
Thus, it’s not surprising that companies operating in Belarus see the country more as a strong base from which to operate in other markets, particularly countries in the Commonwealth of Independent States (CIS), as opposed to an end market to focus on.
“There were several reasons why RoboForex acquired a license in Belarus,” said Andrei Dziarnovich, CEO of RoboForex BY. “First and foremost, however, is the company’s commitment to expand and develop. That’s why receiving the license of the National Bank of the Republic of Belarus is a very important stage of our expansion in CIS countries.”
That sentiment was echoed by Gowan, who said that Capital.com would continue to service its European Union clients through its FCA and CySEC-regulated entities. CIS clients, on the other hand, will sign up to the broker’s Belarusian subsidiary.
“EU operations will continue to be performed via our FCA and CySEC authorised entities,” said the Capital.com CEO. “The Belarusian licensed entity is part of our goal to continue expanding to new jurisdictions, in this case primarily to the CIS market.”
Offshore in Europe
Of course, another reason to head to Belarus is that it is – despite being physically connected to the rest of Europe – not subject to the European Securities and Markets Authority’s regulations.
“We are aware that there is a rising interest with regards to Belarus,” said Gowan. “This trend was especially prevalent after the new ESMA regulations were introduced within the EU last year.”
No broker is likely to say it up front, but having a license in Belarus does mean that, unlike EU-regulated firms, you can offer high leverage trading to your clients.
According to the Financial Commission, a self-regulating industry body, regular clients can be offered up to 100:1 leverage. This can increase to 200:1 or even 500:1 if a client is classified as ‘qualified’ or ‘professional.’
“Trading accounts at our company can be registered by clients from other jurisdictions as well, but this audience is not our target,” said Dziarnovich. “Still, there is an increasing demand for highly-profitable short-term investment instruments, and we may offer them to our clients in this jurisdiction.”
It may not be Limassol and it doesn’t have the suit and tie drenched streets of Canary Wharf, but Belarus is fast shaping up to become a small hot spot for the retail brokerage industry. So, next time you are in Minsk checking in on your development team, don’t be surprised if you stumble upon a dealing desk in the office next door.