The Central Bank of Russia continues its quest against companies that are not licensed in Russia but seek to find way to target Russian investors. Earlier today, the Bank made public a Letter to banks, non-credit financial firms and self-regulatory organizations, in which it warns Russian financial companies against serving as intermediaries for foreign companies.
The Letter may have consequences for Russian FX dealers too, in particular to those that redirect Russian clients to non-Russian Forex brokers.
The regulator deems it unacceptable that an investor may obtain information and/or sign a contract with a foreign entity via the website and/or office of a Russian company.
The Bank of Russia has repeatedly warned investors of the risks involved in signing a contract with foreign financial entities: the consumers are not protected by Russian laws in case of problems with the companies. However, the incessant stream of complaints serves as a piece of proof that violations continue. Most often, investors complain that they were not informed they were entering into a contract with a non-Russian entity. Instead, the investors were misled that they were signing contracts with the entity whose Russian office they were visiting.
The regulator reminds market participants that the Russian laws impose a set of restrictions on foreign entities that want to offer their services in Russia. Avoiding these restrictions carries a heavy amount of risks for consumers and undermines the reputation of the financial industry in Russia. In case of law violation (for instance, publishing of a link to a website of a foreign entity on the website of a Russian entity), the Bank of Russia may penalize the company that has committed the violation.
Countering the activities of entities that are based outside of Russia is difficult, but the Bank of Russia has managed to transfer 142 cases of illegal FX companies to the prosecutors’ office last year, according to Valery Lyakh, Head of the Bank of Russia’s Department for Countering Malpractice. Mr Lyakh stated in February this year that the Bank of Russia is seeking to accelerate and simplify the procedure for blocking of websites of scammers.
A bill drafted by the Ministry of Сommunications and Mass Media proposes amendments to the Law “On Information, Information Technologies and Information Protection”. The bill aims to help the Russian authorities tackle financial fraud executed via the Internet. The piece of legislation will grant the Bank of Russia powers to block access to websites of fraudulent financial companies, including non-licensed overseas FX entities, targeting Russian clients. In September last year, the Ministry of Economic Development published a positive assessment of the bill.
Companies willing to offer OTC FX services to Russian clients have to obtain Forex dealer licenses from the Russian central bank. Thus far, only eight companies have done so.
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