This month’s creation of a Russian ‘mega-regulator’ with the merging of all regulatory functions into the Central Bank of Russia brought an extra measure of topicality to yesterday’s general session, ‘The Regulatory Environment in Russia: Challenges and Opportunities’.
The session explored the new landscape created in the country by a host of regulatory and market changes over recent months, including the establishment of a single central securities depository (CSD) that will also host a new Russian trade repository.
Since February 2013, the National Settlement Depository (NSD) has functioned as a repository in respect of repo agreements and currency swap agreements, and the depository is now in line to provide centralised clearing and reporting of OTC derivatives in Russia for market participants.
The reforms to OTC markets is part of a wider push by the Russian government to transform the country’s trading infrastructure and turn Moscow into an international financial centre. It comes on the heels of the establishment of a single Moscow Exchange last year, following the merger of the country’s RTS and MICEX exchanges.
“The main driver for the creation of the trade repository was reducing risk,” explained Elena Gusalova, Director of Research and Development, NSD. “The events of 2008 showed that it is necessary to create a clear and transparent picture of OTC trades and volumes. It has been huge work, not only for NSD but also for market participants.”
The presence on the panel of Ilka Salonen, CEO, Uralsib Bank, enlivened the debate, not least his frank assessment of compliance as a “pain in the neck”. However, he acknowledged the importance of the new rules regarding the reporting of OTC derivative trades.
“You have to comply with the rules or you are out of the market,” he remarked. “But if you are able to keep the quality of your client services on an acceptable level while fulfilling all those reporting requirements, you will slowly start to monetise and gain a competitive advantage.”
Salonen added that the Russian regulator has improved its performance immensely in the 20 years that he has been under its audit. Previously, he explained, the regulator was distracted by the “nitty gritty stuff”, but now asked “all the right questions” about a bank’s corporate governance rules or risk management systems. “That helps the regulator to understand the system better and also understand the points of risk better,” he remarked. “From the point of view of a bank, the regulator is always going to mess up your life, but on the other hand, we are trusted with other people’s money, so we have to be regulated. I can’t say that I am happy, but within the framework it is functioning fairly well and the big picture has improved a lot.”
Best in class
Session moderator Matthieu de Heering, head of SWIFT’s Moscow office asked the panel if the tightened regulation was leading Russia to shed the ‘wild, wild east’ image that has plagued it in the past. In response, Salonen pointed out that anti-money laundering legislation is far stricter in Russia than many other countries, and the country should be seen as “best in the class” in this respect.
He added that Russia’s image is determined by how well foreign counterparties are aware of what is happening in the country’s market. “If you travel far enough, Russia is still the country where you have polar bears walking on the streets and all kinds of stuff going on,” he said. “But the banks who have been cooperating with Russian banks are well aware of the true situation.”
Alexei Maslov, Acting Russia SWIFT User Group chairperson, and a former adviser to the first deputy chairman at the Bank of Russia, expressed optimism about the future, and contended that as regulation continues to grow, so will the financial services industry itself.
He pointed to the payments industry, as an example. Worldwide, the sector has been growing at an average rate of 7-8%, while in Russia over the last few years it has been growing by 3040%. “The quantity is also accompanied by quality,” insisted Maslov. “Despite the financial crisis, we have had such great progress. The new legislation, the new products, the new technology will only add to that.”