Russian Regulators Eye FinTech Sector, But No Clear Guidance Yet on Binary Options
As the FinTech industry continues to grow globally, Russia’s Central Bank of Russia (CBR) has announced plans to provide guidance on the issue in its regulatory strategy for 2016-2018. However, it has yet to take a stance on binary options.
Consumer Protection and Gambling Strategy
In a document outlining its consumer protection and gambling strategy, the CBR highlighted the need for regulation in the FinTech sector, particularly with regards to consumer protection and anti-money laundering measures.
Licensing Requirements
One of the key drivers of FinTech growth is the ability of companies to offer financial services without requiring full-scale banking licenses. This is also true in Russia, where most traditional financial services are subject to licensing requirements.
Securities Laws
Russian securities laws provide for an exhaustive list of securities, excluding any instruments that do not fall within this definition. In contrast, US securities laws use a more open-ended approach, including terms such as “investment contracts” and “evidence of indebtedness.”
- This difference in approach may lead to regulatory challenges for FinTech companies offering innovative financial instruments.
- For example, a recent public offering of options for future shares of stock by a Russian company went undetected under Russian securities laws, despite likely qualifying as a public offering under US law.
Foreign Securities in Russia
Foreign FinTech companies looking to expand into the Russian market should be aware of rules governing foreign securities and financial instruments. Foreign securities may only be publicly offered in Russia with admission by the CBR, while foreign brokers and dealers are prohibited from performing or offering their services on the financial markets without legal presence.
Foreign Currency Transactions
The Russian currency regime prohibits foreign currency transactions among residents. There are several exemptions, but this rule is worth noting for FinTech companies operating in the country.
State Incentives for FinTech Companies
While there are no specific incentives for FinTech companies, existing incentives for IT and innovative companies may apply to FinTech companies as well. Tax incentives, such as reduced social security contributions and exemptions from certain taxes, are available for Russian tax residents with software development and other IT-related activities.
Skolkovo
The Skolkovo innovation center offers more substantial tax incentives for its residents, including exemptions from corporate income tax, property tax, and VAT, as well as reduced social security contribution rates and customs payments. Several Russian FinTech startups have already taken advantage of these incentives.
Sandboxes
Regulators around the world are experimenting with “sandboxes” that allow FinTech companies to breach regulations under supervision. Russia has not yet adopted this approach, but it is possible that the CBR may consider such a move in the future.
Conclusion
While some important FinTech segments are not yet regulated in Russia, the CBR is aware of emerging models and likely to provide guidance in the future. Foreign FinTech companies looking to enter the Russian market should be prepared for certain restrictions, but there are no regulatory deal-breakers that cannot be overcome with careful planning.