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Forex Sharks Ready for “Strong Hand”. The Ministry of Finance begins to tackle the issue of Forex regulation

01.02.2012 21:13 / Izvestia

The Forex Association came forward with an initiative that may seem paradox at first. It has forwarded proposals to the Ministry of Finance that may be instrumental in creating the legal framework for Forex regulation. “Izvestia” spoke to Sergey Krivoborodov, President of the Financial Instruments Regulation Centre (CRFIN), the self-regulatory organization (SRO) of Forex companies.

“We would like to share our opinion on our market regulation principles in Russia with the relevant authorities,” explains Krivoborodov. “We came forward with standards that, in our view, should be essential in this regulation. First of all, we believe, all business should be conducted only on behalf of Russian entities. Second, certain capital requirements should be introduced – RUB 15mn for the majors. Third, we’ve got some advertising rules – no false promises and full information on the risks”.

According to the CRFIN President, the Organization suggests to make SRO membership obligatory for Forex traders. Thus, the SRO standards will be law, and that is the first step on the path towards creating a legislative framework for the market.

The Ministry of Finance representatives confirmed that the letter has been received and is being studied.

“We are not ready yet to announce that there will be a working group on Forex regulation,” said a Ministry source. “This is under discussion”.

The lack of proper control over Forex traders has already become a major concern for the State. State bodies and professional associations are flooded with claims from clients of various financial companies; there is massive backlash from other financial market participants – bankers and brokers. But no concrete actions have been taken yet.

Possible dialogue between the Forex market participants and the authorities may be hailed as revolutionary in the Russian market. In late November 2011, Deputy Minister of Finance Alexey Savatyugin and Dmitry Pankin, Head of the Federal Financial Markets Service (FFMS), discussed Forex regulation at the Russian Money Market forum in a way that it seemed they were trying to get rid of this issue. In late January, Pankin reconfirmed his position in his blog. Urging investors to treat companies registered abroad with some caution, the Head of FFMS pointed out that his department does not control this market at all.

“This should have been discussed much earlier,” says Igor Kostikov, President of the Russian Industrialists Union and former head of the FCSM (Federal Commission for the Securities Market), the FFMS predecessor. “Forex has a place in Russia, but only within serious legal control. The first essential measure should be the introduction of licensing for Forex trades as financial operations. The same way banks are licensed, because Forex companies also offer loans (margin trading)”.

Kostikov supports the idea to prohibit the Forex companies registered abroad from working in the Russian market, due to the ban on trans-border transactions in our country, not lifted despite the WTO ascendancy.

Forex market participants are part of the MIFC Taskforce. There have been only two workgroup sessions so far on Forex regulation.

“These were simply introductory meetings aimed at getting the full picture and sharing opinions on Forex market regulation,” the MIFC Taskforce told “Izvestia”. “The groundwork is currently underway: we are studying different angles of the issue. The market is very complicated and it will take time and effort to form an expert opinion. Drafts of detailed solutions must be based on the results of such assessment”.

According to Sergey Krivoborodov, the consolidated opinion of the market participants and the MIFC Taskforce will appear in March at the earliest. Consultations are now in porgress. All the Forex regulation proposals will be forwarded to the FFMS.

The Ministry of Finance told “Izvestia” that there is no decision yet on whether a separate legal framework for the Forex market is necessary. Discussions continue.

Maria Saricheva

Project Group №1Dmitry PankinAlexei Savatyugin