Forex dealers’ clients to get compensation payments

Bank of Russia Bulletin No. 111 (1707), dated 2 December 2015, published Bank of Russia Ordinance No. 3796-U, dated 13 September 2015, ‘On the Requirements for the Compensation Fund Creation Procedure of a Self-regulatory Organisation of Forex Dealers, and on the Procedure and Terms of Compensation Payments’ (becomes effective in 10 days).

The Ordinance states that a self-regulatory organisation (SRO) of Forex dealers shall create a compensation fund to indemnify household clients in the event of bankruptcy of SRO Forex dealers. Each Forex dealer organisation pays a premium to the compensation fund pro rata balanced households’ (clients’) cash amounts.

The Ordinance describes in detail the procedure and terms of compensation fund recreation, its minimal level and also establishes the procedure and terms for compensation payments from the fund in the event of Forex dealer bankruptcy. In particular, the Bank of Russia ratio does not allow any Forex dealer’s exemption from the payment of premium to the compensation fund through setoff of its own claims to SRO. One needs to mention that even a Forex dealer SRO membership termination in the wake of bankruptcy event with another member does not exempt a Forex dealer from making additional cash contributions to the compensation fund in the event of a critical need.

The Ordinance also describes the procedure of keeping by a self-regulatory organisation the register of compensation payments to a corresponding Forex dealer’s clients, lists the client information requirements and states register storage time. According to the ratio, Forex dealers’ SRO shall timely post on its website the information on the insolvency (bankruptcy) of its members, as well as on the procedure and time spans for compensation payment claims by the clients.

Finally, the Ordinance regulates the procedure of additional payments to the compensation fund by SRO members when needed and the procedure for compensation payments in the event of bankruptcy with two or more Forex dealers.

The Bank of Russia Ordinance is issued on the basis of Clause 8² of Article 42, Clause 4 & Clause 7 of Article 50² of Federal Law No. 39-FZ, dated 22 April 1996, ‘On the Securities Market.’