Bank of Russia Wipes Out Local Retail FX Industry

The Russian regulator corners the market into the hands of local banks, strips industry pioneers of permits.

The central bank of Russia has stormed into the local regulated market earlier on Thursday. After several years of controversial decisions, the official end of competition on the regulated Russian market is a fact.

The mega-regulator’s move was to strip several broking companies of their licenses and therefore corner the market into the hands of major local banks. Alpari, TeleTrade, TrustForex, InstaForex, and Forex Club have all been suspended.

The move comes only a couple of days after the central bank granted a new license to Alfa Forex. In what seems to be a coordinated attack against private businesses, the Russian authorities are behaving in a traditionally authoritarian way.

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One Month Notice

The decision, which was published on Thursday on the website of the Bank of Russia, carries a one month notice. The companies will have until January 27 to cease all operations and return deposits to clients.

The official justification for the decision taken by the Russian central bank is related to systemic violations of the guidance of the authority, risk management deficiencies, and others.

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The wrath of the regulator goes one step further as the Russian central bank also added the names of individuals managing the firms into its announcement. Senior management figures from Alpari, TeleTrade, TrustForex, InstaForex, and Forex Club were singled out.

Retail Broking Cartel

The approach of the central Russian authority is uncompromising. In traditional fashion for the country, the forex broking business was served on a platter to large mega-corporations controlled by individuals close to the Russian government.

Every foreign company that explored the acquisition of an official license to operate in Russia has been discouraged by its findings. After CRFIN, an existing self-regulatory organization, was effectively dismantled by the regulator, it crafted its own industry body, the AFD.

Offshore Push to Continue

With competition lacking on the local marketplace Russian citizens are focusing their attention offshore. A number of brokers have been pursuing opportunities outside of the country.

While the official regulatory framework was taking shape, the market quickly reoriented. A number of locally operating companies opened offices in offshore jurisdictions.

The action taken by some local brokers could be one of the main reasons for the central bank’s move. Instead of closing regulatory loopholes, the financial mega-regulator chose to use a more traditional approach for reigning in an industry in Russia.

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