From Russia with regulation

18 September 2013
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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.”

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