Belarus Forex Market Regulation

/Belarus Forex Market Regulation

Recently, the Financial Commission increasingly receives members’ inquiries asking to explain the key provisions and regulation specific in Belarus. High interest in this jurisdiction is justified and can be explained at least by  the following:

  • Incomplete, incomprehensible and “expensive” regulation in Russia as well as absence of feedback from regulator regarding its prospects

  • On the contrary, favorable and comprehensible, based on European standards,  Belarus regulation  has a great chance to make this jurisdiction forex haven for the entire CIS.

In this article we want to make a detailed analysis of Belarus forex regulation to make it clearer and answer all industry questions regarding this matter.

In accordance with Edict № 231, Belarus forex regulation came into force in March 2016, since then, six companies and one of the national banks have already been included in the register of forex companies  by the National Bank of the Republic of Belarus.

In order to provide services on retail Forex market in Belarus, first of all, it is necessary to obtain license issued by the National Bank of the Republic of Belarus to be included in the register of forex companies  (simpler and “softer” analog of licensing), secondly, to undergo an assessment of software used in the National forex center and deposit a quarantee payment to the compensation Fund in amount of 55 000 US dollars (note: the payment will be returned in case of voluntary exit from the market without any uncovered obligations towards clients) and, thirdly, to become a member of the local Association of Financial Market Development – “ARFIN”.

Obtaining of license from the National Bank of the Republic of Belarus requires incorporation of local legal entity as well as preparation of all necessary documentation and going through certain legal procedures.

Basic requirements

Financial requirements

Min. capital

~$103,000

Funds must be allocated on the company’s account in one of the local banks

Compensation fund payment

$55,000 – guarantee fee +calendar fees in amount of 5% of the amount of total liabilities towards clients. Important! When the total amount of the company’s clients funds is reducing the calendar fees are paid back to the company.

Funds are transferred to the National forex center and allocated on deposit in a local bank.

Risk management and risk capital

Yes

Regulation has fairly strict risk management requirements which implies that the maximum size of own, not overlapped total position for each instrument may not exceed the amount of equity capital of the dealer. In fact, if the dealer does not have large equity capital, then, almost all clients positions should be hedged on an external counterparty. At the same time, regulation is quite flexible in choosing of counterparties and permits transactions with foreign companies.

Trading conditions

Max. leverage

  • Client 1:100

  • Qualified client 1:200

  • Professional client 1:500

Professional client

  • Local forex company and (or) with license to carry out insurance activity, banking and exchange activity regarding securities;

  • Non-resident legal entities licensed to operate on OTC forex market and carry out banking or other financial activity;

  • The income of legal entity reduced by taxes and fees for the last fiscal year amounts to at least 4 million base units*;

  • The total amount of company’s accounting balance by the end of the last fiscal year amounts to at least 2 million base units*;

  • Equity capital of the legal entity by the end of the last fiscal year amounts to at least 200 thousand base units*;

Qualified client – legal entity or individual that:

  • Conducted at least 10 transactions totalling more than 10 thousand base units*  within each of the last four quarters.;

  • The amount of client long-term and short-term investments, including cash, by the first date of the current month is more than 10 thousand base units*;

Client – usual client who has minor trading experience or does not have any experience at all.

*Base unit amounts to 21 Belarussian ruble or 10.83 USD

Instruments

FX and CFD

Trading accounts in different currencies

Yes

PAMM accounts

No

The regulation does not have any specific requirements for asset managers, however, forex dealers can not represent independent managers on their websites and must not participate in negotiations between investors and managers.

Copy trading

Yes

No additional requirements for dealers

Market making

Yes

Accepted risks must correspond with company’s equity capital, if the established normative is exceeded, a mandatory withdrawal of positions on the counterparty must be carried out (see requirements for risk management)

STP

Yes

Withdrawal on foreign brokers is possible

Clients’ and own funds. Choise of counterparties

Segregation of client’s  funds

No

Allocation of client’s funds on foreign banks and financial companies

accounts

Yes

50% of clients’ funds must be allocated on local bank account

Using of client’s funds for hedging transactions abroad

Yes

Not more than 50% of clients’ funds may be allocated on counterparties’ foreign accounts for hedging and direct withdrawal of orders

Allocation of own funds abroad

Yes

All company’s funds for hedging transactions abroad

Requirements for foreign counterparties

Yes

Foreign counterparty should be an American, Japanese or Russian company with profile license (permission), as well as company with a license (permission) obtained in the European country applying provisions of MIFID.

In addition, the counterparty may be a company from another jurisdiction, which is not offshore, if the performance of its obligations towards the forex company is guaranteed by the bank or other entity which financial viability is confirmed by the auditor’s report.

Forex company may hedge transactions, in amount not exceeding 5 percent of the amount of client funds, in any foreign company which equity capital amounts to at least 5 million euros, as well as in parent company in any amount, but at its own expense.

Sales and Marketing

Forex services advertising requirements

Yes

Prohibition of guaranteed income promises, mandatory risks warning, prohibition on useage of information that is not evidenced documentary, etc.

Sales ethics control

No

Indirectly (see advertising requirements)

Opening of own offices

Yes

No specific requirements for office operating activity

Introducing brokers

Yes

No specific requirements for introducing brokers

Personnel professional requirements

Director

Yes

Higher legal or economic education, no criminal record (unserved), absence of facts of initiation of criminal proceedings, as well as dismissal due to loss of confidence

Internal Control Officer

Yes

Higher legal or economic education, no criminal record (unserved), absence of facts of initiation of criminal proceedings, as well as dismissal due to loss of confidence

Dealer

No

Sales

No

Taxes and other fees

Annual fee

No

Reporting to the depositary (the National forex center)

Yes

~$ 1,230 monthly.

Company income tax

Yes

Reduced rate in amount of 9% until 2019, afterwards 18%.

Function of a tax agent

No

The Company does not levy taxes from customers.

Clients income tax

No

No income tax on forex trading until 2019. Afterwards 13%.

Summing up all the analysis of forex regulation in Belarus, it can be said that:

  • Firstly, it is logical and clear to any international forex dealer

  • Secondly, it takes into account the interests of all parties (business, clients and state)

  • And, thirdly, has foundation that allows to carry out further improvements and changes.

For instance, at first glance it may seem that the requirement of allocation of 50% of client funds in Belarus looks tough enough as it deprives the dealer’s ability to use all client funds for hedging client positions on external counterparty. This point may seem especially painful for dealers working exclusively on STP model. However, in case of obligatory segregation of client funds such as, for example, in Russia, the client funds can not be used at all. Consequently, the dealer will have to do it either at his own expense or by obtaining a credit line  from counterparties what is almost impossible if the forex license is not recognized by the state where the dealer’s counterparty registered.

In this case, Belarus regulation offers a compromise, which, on the one hand, gives the dealers the opportunity to use part of client funds for hedging transactions and, at the same time, prescribes to allocate half of client funds “at home”, thereby, significantly reducing risks of foreign counterparties which are supervised by authorities of other states.

2016-08-24T00:00:00+00:00August 24th, 2016|