Putin signs decree disbanding FSFR, transferring its functions to Central Bank

President Vladimir Putin on Thursday, July 25, signed a decree that disbanded the Federal Service for Financial Markets (FSFR) and instructed the government to carry out liquidation procedures within the period of time stipulated by law. Earlier, Putin signed a law creating a mega regulator in Russia on the basis of the Central Bank, which will start acting in this capacity from September 1, 2013. The law amends 36 regulatory acts, including the Tax and Civil Codes, as well as banking legislation. The mega regulator will be created on the basis of the Central Bank, which will assume the functions of the Federal Service for Financial Markets. As a result, the Central Bank will incorporate the Federal Service for Financial Markets and will assume such of its functions as legal regulation, supervision of financial markets, including insurance operations, credit cooperation and micro financial activities, operation of commodity exchanges, exchange mediators and brokers, formation and investment of pension savings. The Central Bank’s Board of Directors will be increased from 13 to 15 members. More than 55 countries have financial mega regulators, including on the basis of the central banks in 13 of them. The consolidation of functions within one body will allow it to better oversee investment, banking and financial groups, timely detect and respond to risks in the financial sector, optimise the management system and regulatory expenses. At the same time, the Committee believes that the draft law needs to be worked on before a second reading to introduce additional mechanisms to avoid and detect conflicts of interest and to prevent the use of insider information in the work of the Central Bank. The Committee also stressed that the mega regulator should protest the rights and interests of individuals who use not only insurance, investment and other services but also banking services, as well as the rights and legitimate interests of investors in the securities market. The draft law provides for the transfer of certain functions currently performed by the Central Bank to self-regulatory organisations operating in the financial market. The Committee suggested setting standards for granting the status of self-regulatory organisation, the obligation of such organisations to oversee compliance by their members with regulatory acts and standards, etc. The Committee also believes it necessary for the Central Bank to provide a broader performance report to the State Duma following its assumption of new functions to regulate ad oversee financial markets. The draft law on the financial mega regulator should be adopted by the Duma before the end of the current session and enter into force from August 1, 2013. Creating a financial mega regulator is important for the economy, including for its de-offshorisation, Elvira Nabiullina, now Central Bank Chair, said earlier when she was a presidential aide. She described “the current economic situation” as “very complex”. “We all need to stimulate economic growth and the banking system and the Central Bank have a role to play in this [process].” “And of course, if the parliament passes relevant legislation, creating a mega regulator would be a challenging task but we need to look at the financial system as a whole and have unified principles of supervision and regulation,” Nabiullina said. In her opinion, “this is very important for de-offshorisation of the economy.” “The financial system should work for the economy,” she added. The law will enter into force on September 1, 2013.