03.12.2015, 00:10
Bank of Russia Unveils Document on Financial Market Development
OREANDA-NEWS. The Bank of Russia has elaborated and published the first strategic document on the financial market development.
The release of this document once every three years is stipulated by the Federal Law 'On the Central Bank of the Russian Federation (Bank of Russia)'.
The national economic growth, improved households' living standards, and the achievement of inflation targets are not possible without up-to-date financing mechanisms and a supportive environment for enterprises and organisations across all economic sectors. To enable this, the Bank of Russia in its capacity of the mega-regulator has prepared a strategic document which covers the whole range of the financial market operation and draws on all existent development strategies for the banking sector, insurance activities, pension system and other, in the context of the current situation.
The new strategy sets the following top-priority objectives: to raise the living standards of the Russian citizens, to ensure growth and development of the real sector of the Russian economy, and to create conditions stimulating growth in the financial sector.
To achieve these objectives, the Bank of Russian and other stakeholders intend to focus on several areas, the first of which is financial services consumer protection, financial inclusion issues and financial literacy improvement for Russian households.
The Bank of Russia's set of measures provides for the inclusion of financial literacy as a mandatory secondary education subject, the installing of the financial ombudsman institute, which will be in charge of sorting out financial disputes among households and financial organisations, the creation of special financial products and services addressed to various groups of the population, and also the explaining of how to use these products. Besides, the Bank of Russia intends to inform consumers on the activities of unscrupulous financial intermediaries and financial pyramids, and to introduce additional requirements for advertising. In this connection, the document says that, 'Public advertisement of financial products and services not designed for unqualified users shall be radically limited'.
The new strategy pays special attention to financial inclusion, which implies that all legally capable individuals and also small and medium-sized businesses shall have a guaranteed set of high-quality financial services on an ongoing basis. Given the vast territory of the country, the Bank of Russia views the introduction of modern information technologies as an essential condition for achieving financial inclusion. Stimulating cashless transactions in the national currency will be another priority of the mega-regulator.
The Bank of Russia considers its activities to counter financial misconduct, conducted jointly with law-enforcement and judicial authorities, as one of its top priorities. According to the authors, the unavoidability of punishment for any breach of law, if observed, comes as a more effective means to prevent any emerging misconduct practices, compared to a system of regulation which is enforced through mechanical constraints.
The Bank of Russia proposes that a dedicated liability system be applied for a financial institution's owners, executives and other staff. This would enable corrective action against a noncompliant institution, waiving license revocation as the sanction of last resort.
As new regulation, the document provides for agreement with the regulator, a legal rule with a successful record of application across most advanced economies. This agreement helps mitigate the negative impact when market players are brought to justice, on condition the damage they have incurred is compensated in a timely and efficient manner and other players' rights and interests, as affected by the wrong-doer's actions, are reinstated.
The Bank of Russia will strive to promote a modern corporate governance system aimed at better investment attractiveness of public companies' (joint-stock companies') shared funding.
In this connection, it is suggested that the role and responsibility of the board of directors in strategic management be strengthened. This would include responsibility for inaction and reinforced accountability of members of management bodies in joint stock companies, their disciplinary and financial responsibility. This would doubtless imply tougher requirements for business reputation and qualifications, education and experience of their governing body members and executives.
According to the Bank of Russia strategy, the development of the bond market would help address the shortage of market collateral in the financial system. It would also create favourable conditions for big business borrowers to enter the bond market, allowing credit institutions to liberate more capital. The banking sector would thereby be able to extend lending to borrowers who have no access to the bond market, including to small and medium-sized businesses.
As access of Russian borrowers to Western financial markets remains limited, the Russian regulator will seek to support the development of syndicated lending. The promotion of the syndicated loan will meet the borrower's funding needs in cases where the issue of bonds is problematic or impossible.
The Bank of Russia also intends to improve its financial regulation system, softening and appropriating regulatory burden on a pro rata basis. The requirements are expected to vary across systemically important institutions, small organisations and other companies, based on their operational risks for the financial sector. Information technology would need to be rolled out vigorously to reduce financial intermediaries' costs related to preparation of various reporting.
Also, the Bank of Russia pays special attention to the preparation of qualified personnel for financial institutions. In this connection, apart from streamlining national financial education, plans are underway to set up a mechanism for recognising foreign qualification certificates in Russia.
A further development and improvement of mechanisms for electronic cooperation in the financial market is planned to let the citizens and participants in the financial market, irrespective of their locations, have equal access to financial services, including payment services. However, financial exclusion and lack of information about the possibility to use such mechanisms, as well as distrust of new forms can be a serious obstacle, about which the Bank of Russia warns and introduces necessary measures to overcome it.
The Bank of Russia's efforts in international cooperation will be aimed at maintaining the status of the Russian market as a part of the global financial market. In this regard the Bank of Russia will go on fulfilling the international obligations it accepted earlier, including those in the framework of the G20, the Financial Stability Board, and the Bank for International Settlements committees. The Bank of Russia's activity within the BRICS and the Eurasian Economic Union will be aimed at harmonising the current systems of regulation of the member states and integrating financial markets in line with valid international rules in this sphere.
The Bank of Russia will keep creating the tools to add to the financial stability in order to promote a higher trust in the market and achieve the objectives written down in the document.
Following discussions with the community of professionals and the Government of the Russian Federation, an updated document will be submitted to both the Russian Government and the State Duma.
The release of this document once every three years is stipulated by the Federal Law 'On the Central Bank of the Russian Federation (Bank of Russia)'.
The national economic growth, improved households' living standards, and the achievement of inflation targets are not possible without up-to-date financing mechanisms and a supportive environment for enterprises and organisations across all economic sectors. To enable this, the Bank of Russia in its capacity of the mega-regulator has prepared a strategic document which covers the whole range of the financial market operation and draws on all existent development strategies for the banking sector, insurance activities, pension system and other, in the context of the current situation.
The new strategy sets the following top-priority objectives: to raise the living standards of the Russian citizens, to ensure growth and development of the real sector of the Russian economy, and to create conditions stimulating growth in the financial sector.
To achieve these objectives, the Bank of Russian and other stakeholders intend to focus on several areas, the first of which is financial services consumer protection, financial inclusion issues and financial literacy improvement for Russian households.
The Bank of Russia's set of measures provides for the inclusion of financial literacy as a mandatory secondary education subject, the installing of the financial ombudsman institute, which will be in charge of sorting out financial disputes among households and financial organisations, the creation of special financial products and services addressed to various groups of the population, and also the explaining of how to use these products. Besides, the Bank of Russia intends to inform consumers on the activities of unscrupulous financial intermediaries and financial pyramids, and to introduce additional requirements for advertising. In this connection, the document says that, 'Public advertisement of financial products and services not designed for unqualified users shall be radically limited'.
The new strategy pays special attention to financial inclusion, which implies that all legally capable individuals and also small and medium-sized businesses shall have a guaranteed set of high-quality financial services on an ongoing basis. Given the vast territory of the country, the Bank of Russia views the introduction of modern information technologies as an essential condition for achieving financial inclusion. Stimulating cashless transactions in the national currency will be another priority of the mega-regulator.
The Bank of Russia considers its activities to counter financial misconduct, conducted jointly with law-enforcement and judicial authorities, as one of its top priorities. According to the authors, the unavoidability of punishment for any breach of law, if observed, comes as a more effective means to prevent any emerging misconduct practices, compared to a system of regulation which is enforced through mechanical constraints.
The Bank of Russia proposes that a dedicated liability system be applied for a financial institution's owners, executives and other staff. This would enable corrective action against a noncompliant institution, waiving license revocation as the sanction of last resort.
As new regulation, the document provides for agreement with the regulator, a legal rule with a successful record of application across most advanced economies. This agreement helps mitigate the negative impact when market players are brought to justice, on condition the damage they have incurred is compensated in a timely and efficient manner and other players' rights and interests, as affected by the wrong-doer's actions, are reinstated.
The Bank of Russia will strive to promote a modern corporate governance system aimed at better investment attractiveness of public companies' (joint-stock companies') shared funding.
In this connection, it is suggested that the role and responsibility of the board of directors in strategic management be strengthened. This would include responsibility for inaction and reinforced accountability of members of management bodies in joint stock companies, their disciplinary and financial responsibility. This would doubtless imply tougher requirements for business reputation and qualifications, education and experience of their governing body members and executives.
According to the Bank of Russia strategy, the development of the bond market would help address the shortage of market collateral in the financial system. It would also create favourable conditions for big business borrowers to enter the bond market, allowing credit institutions to liberate more capital. The banking sector would thereby be able to extend lending to borrowers who have no access to the bond market, including to small and medium-sized businesses.
As access of Russian borrowers to Western financial markets remains limited, the Russian regulator will seek to support the development of syndicated lending. The promotion of the syndicated loan will meet the borrower's funding needs in cases where the issue of bonds is problematic or impossible.
The Bank of Russia also intends to improve its financial regulation system, softening and appropriating regulatory burden on a pro rata basis. The requirements are expected to vary across systemically important institutions, small organisations and other companies, based on their operational risks for the financial sector. Information technology would need to be rolled out vigorously to reduce financial intermediaries' costs related to preparation of various reporting.
Also, the Bank of Russia pays special attention to the preparation of qualified personnel for financial institutions. In this connection, apart from streamlining national financial education, plans are underway to set up a mechanism for recognising foreign qualification certificates in Russia.
A further development and improvement of mechanisms for electronic cooperation in the financial market is planned to let the citizens and participants in the financial market, irrespective of their locations, have equal access to financial services, including payment services. However, financial exclusion and lack of information about the possibility to use such mechanisms, as well as distrust of new forms can be a serious obstacle, about which the Bank of Russia warns and introduces necessary measures to overcome it.
The Bank of Russia's efforts in international cooperation will be aimed at maintaining the status of the Russian market as a part of the global financial market. In this regard the Bank of Russia will go on fulfilling the international obligations it accepted earlier, including those in the framework of the G20, the Financial Stability Board, and the Bank for International Settlements committees. The Bank of Russia's activity within the BRICS and the Eurasian Economic Union will be aimed at harmonising the current systems of regulation of the member states and integrating financial markets in line with valid international rules in this sphere.
The Bank of Russia will keep creating the tools to add to the financial stability in order to promote a higher trust in the market and achieve the objectives written down in the document.
Following discussions with the community of professionals and the Government of the Russian Federation, an updated document will be submitted to both the Russian Government and the State Duma.
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