Russian c-bank introduces capital adequacy ratio for Forex brokers

The Central Bank of Russia today announced the introduction of a capital adequacy ratio for professional market participants, a category that includes Forex dealers (the official designation for OTC Forex brokers in Russia).

Effective October 1, 2021, brokers, dealers, asset managers and Forex dealers must comply with the capital adequacy ratio and make provisions for credit claims. The relevant Bank of Russia ordinance has been registered by the Ministry of Justice.

The capital adequacy ratio is calculated on a monthly basis as the capital to risk-weighted assets ratio, subject to the adjustment factor, and should be maintained on a permanent basis. This framework will enable professional market participants to cover potential financial losses at their own expense if credit or market risks materialise.

The ratio is planned to be set in stages. From 1 October 2021, the minimum acceptable value will be 4%, increasing to 6% from 1 April 2022 and thereafter to 8% from 1 October 2022.

Also, market participants will be subject to the banking equivalent of provisioning for credit claims. Brokers are currently free of such requirements; yet, similar to banks, they have refund obligations to customers and can use customer funds to issue loans and make repo transactions. Where claims are secured by high-quality assets, it will be allowed to reduce provisions.

‘Provisioning is to improve the portfolio of instruments in which brokers will invest, in their own interests, clients’ money’, says Vladimir Chistyukhin, Deputy Governor of the Bank of Russia. ‘It is important that brokers are responsible to a client under claims arising from the use of client assets. They should be placed either in steadier companies with the lowest credit risk or in inherently higher-quality instruments.’

Let’s note that, at present, there are only three companies that have Russian FX dealer licenses: VTB Forex, Alfa-Forex and FINAM Forex.

As FX News Group has reported, in December 2020, the Central Bank of Russia announced the annulment of the Forex dealer license of PSB-Forex. The reason for the regulatory decision was a request submitted by the broker itself.

Early in 2020, PSB-Forex was put up for sale by its parent company, with the start price for the broker being RUB 149 million. All of the share capital of PSB-Forex was offered for sale. However, the sale process attracted no bidders.

PSB-Forex was one of the handful of firms that have Forex dealer licenses in Russia. In December 2018, the Central Bank of Russia annulled the licenses of several Russian FX brokers, including Alpari, Forex Club and TeleTrade. In its official announcement back then, the Central Bank explained that the licenses of five companies – Forex Club, Alpari Forex, Trustforex, Fix Trade, and TeleTrade Group, were taken away due to the companies’ violations of the Russian law.

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