The Central Bank of Russia introduces a capital adequacy ratio for forex brokers

The Central Bank of Russia announced the introduction of a capital adequacy (solvency) ratio for professional market participants, i.e. the category that includes dealers Traders Union: Best Low Spread Forex Brokers (official term for OTC brokers in Russia).

From October 1, 2021, brokers (forex dealers) and asset managers will be required to adhere to the capital adequacy ratio and to create provisions against credit claims. The relevant regulation of the Bank of Russia has already been registered by the local Ministry of Justice.

Risk minimization

The capital adequacy ratio will be calculated monthly and will be the ratio of capital to risk-weighted assets, taking into account the adjustment factor. It should also be maintained continuously. The framework will enable professional market participants to cover potential financial losses should credit or market risks materialize.

It is expected that this indicator will be established in stages. From October 1, 2021, the minimum value will be 4%, from April 1, 2022, it will increase to 6%, to reach 8% from October 1, 2022.

Financial reserves

In addition, market participants will be subject to the banking equivalent of the provisioning of credit claims. Brokers are currently exempt from such requirements, however, like banks, they do have return obligations to their clients. Thus, they can use customer funds to make loans and conclude repo (conditional purchase) transactions. Where claims are secured by high-value (quality) assets, it will be permissible to reduce the provisions.

The change is aimed at improving the portfolio of instruments in which clients' money will be invested. It is important that brokers are liable to the client for claims arising from the use of their assets. They should be invested either in more stable companies with the lowest credit risk, or in inherently higher quality instruments.. - comments Vladimir Chistyukhin, vice president of the Bank of Russia

It is worth noting that after how in recent years the authorizations of several entities were withdrawn, currently only three companies have Russian forex dealer licenses. Will the introduced regulations improve these statistics?

Source: press release of the Central Bank of Russia