Russian Regulation is in Catch 22

Russian Regulator More Transparent Than European Ones, Or Is It?

The Bank of Russia not only announces which companies are receiving a license, but also those that are denied one

At a time when regulatory licenses in Europe have been relatively easy to obtain for a number of clients, several industry insiders have started proclaiming in the aftermath of last year’s bankruptcies post-SNB that the criteria for issuing a license for retail brokers are flawed.

With the commonly known truth that every brokerage that applies for a license gets one as long as it pays the fee, the Bank of Russia has taken a different approach.

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The mega-regulator headquartered in Moscow has decided to publicize the process of issuing licenses fully and has recently not only published the approval of two market players but also the denial of a license to another broker.

At first glance, the transparency effort is welcome, however having in mind the reputation of Russian officials the publication of brokers that have been denied is conflictual. If such publications are to be made, the logical continuation of the transparency effort would have been to identify the reason why a certain brokerage has been denied a license. No such effort has been made by the Bank of Russia.

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In an announcement earlier this week the mega-regulator publicized that TeleTrade and Trustforex have been granted authorization, while the application of Profit Broker has been declined.

The Catch 22 of Russian Regulation

Currently only three companies are officially authorized by the Russian central bank to operate in the country with the application of TeleTrade dating to December last year. That said, the firms do not fully comply with the legislation passed by parliament since none of them is a member of an independent self-regulatory organization.

The brokerage which got the first license, Finam Forex, is in the process of creating an SRO, which is likely to be joined at least by one other Bank of Russia license holder. Meanwhile, CRFIN is expected to apply as an SRO with the central bank since it already has one of the licensed companies as a member.

Summarizing the current state of Russian regulation is easy with the infamous catch 22 expression. While some brokers are licensed by the central bank, they are not members of an SRO. On the other hand, the only institution in Russia that is close to what an SRO should look like is CRFIN, which is currently registered as an association and is not defined by the central bank as an SRO.

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