## _cr16233

## Source details

**Canonical URL:** [_cr16233](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2016/_cr16233.pdf)

## Other formats

- [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2016/_cr16233.pdf.md)
- [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2016/_cr16233.pdf.json)

---

### Executive summary — key observations and challenges
- CBR completed a two-year process of assuming powers and functions of the previous standalone regulator of the securities markets and the insurance industry, including absorbing "1,300" new staff and inducting them into the organizational structures of the central bank.
- CBR’s remit now includes supervisory functions covering a disparate group of markets and professional market participants, and a developmental role for nonbank financial markets emphasizing proportionate regulation and optimization of the regulatory burden.
- Departures from IOSCO requirements arise from:
  - absence of specific requirements in the legal framework;
  - insufficient implementation in practice; and
  - a complex legislative structure with many overlapping and in some cases inconsistent provisions that impose detailed obligations but fail to impose overarching duties required by IOSCO.
- Recent regulatory changes in some areas (for example, credit rating agencies) follow international standards; further initiatives are required in other areas, including:
  - conflicts of interest identification;
  - improving standards of management in professional market participants;
  - creation of legal gateways enabling supervisors to provide guidance on CBR’s reasonable expectations (risk management, internal control systems, fair treatment of clients);
  - client-facing rules and improved customer profiling to protect unsophisticated retail clients;
  - improvements to prospectus and continuous disclosure regimes for listed companies; and
  - clearer, sufficiently accurate disclosure documentation for unit investment funds to aid retail investor understanding.
- Enforcement capacity is a major challenge and will require additional resources:
  - CBR is responsible for "19,000" nonbank licensees.
  - Inspection team size: "250" members.
  - In 2014, scheduled (routine) inspections carried out: "97".
  - In 2014, unscheduled inspections (investigations into complaints or allegations): "499".
- Accounting standards transition is complex: move to IFRS is underway while a requirement to publish accounts according to Russian Accounting Standards remains.
- On insider trading and market manipulation, investors will expect to see criminal prosecutions presented in court in the near term to demonstrate enforcement.

### Assessment scope, methodology, and context
- Assessment conducted from February 3–16, 2016 as part of the Financial Sector Assessment Program (FSAP).
- Assessors: Richard Pratt and Richard Britton, external Monetary and Capital Markets Department experts.
- Basis: IOSCO Principles and Objectives of Securities Regulation (2010) and Methodology (2011, updated 2013); Principle 38 not assessed.
- Information sources included CBR documents, CBR self-assessment, and meetings with CBR, Ministry of Finance, Ministry of the Interior, Moscow Stock Exchange, and private sector.

### Regulatory structure — roles and responsibilities
- CBR:
  - Established under Federal Law No. 86-FZ of 7/10/2002 “On the Central Bank of the Russian Federation (CBR)”.
  - Assumed nonbank financial sector powers via Federal Law No. 251-FZ of 7/23/2013.
  - Powers include staff hiring and remuneration policies, central bank functions, monetary policy, payment systems oversight, integrated supervision of financial services sector, and supervision of takeovers and mergers of companies that have issued securities to the public.
- Other bodies with regulatory roles:
  - Ministry of Economic Development administers the Joint Stock Companies Act; disclosure for companies offering securities to the public is responsibility of CBR.
  - Ministry of Finance sets accounting and auditing standards; relies on National Organization for Reporting Standards and the Audit Council.
  - Enforcement of audit standards: Federal Financial and Fiscal Service (for public interest companies) and Self-Regulatory Organizations (for all audit firms).
  - Federal Anti-Monopoly Service can intervene in markets supervised by CBR.

### Market structure — intermediaries, concentration, and activity
- Licensed intermediaries include brokers, dealers, investment managers, custodians, and registrars; investment advisers are not separately licensed; underwriting encompassed within brokering and dealing.
- Most intermediaries hold multiple licenses:
  - NAUFOR: "59.7 percent" of licensees held licenses as brokers, dealers and investment managers.
  - Of those, "65 percent" also had licenses as depositories.
- As of January 21, 2016:
  - Total number of intermediaries: "826" (most holding multiple licenses).
  - This represents a reduction of "18.7 percent" over the year.
- Securities licenses (Source: CBR):
  - Broker: "624"
  - Dealer: "641"
  - Investment Manager: "533"
  - Depository: "498"
- Market participation and concentration (2014):
  - According to NAUFOR, "536" organizations traded on the exchanges in 2014.
  - Top ten firms accounted for "63.9 percent" of trading volume (up from "61.9 percent" in the previous year).
  - CBR was the most active trader in non-government securities, accounting for "21.4 percent" of total turnover (down from "22.7 percent" in 2013).
  - CBR market shares by instrument:
    - Corporate bonds: "32.9 percent".
    - Shares: "3.4 percent".
  - Sberbank Group (CBR holds 50 percent plus one share):
    - Shares market: "15.5 percent".
    - Corporate bonds: "10.0 percent".
- Top ten traders in non-government securities by volume (Source: CBR) — shares (percent):
  1. CBR — "21.4"
  2. Otkrytiye Group — "9.7"
  3. Sberbank Rossii Group — "8.9"
  4. VTB Group — "8.5"
  5. BCS Group — "3.9"
  6. Gazprom Group — "3.2"
  7. Renaissance Group — "2.5"
  8. Vnesheconombank Group — "2.1"
  9. Bank Saint Petersburg JSC — "1.9"
  10. BC REGION LLC — "1.9"
  - Total (top ten): "63.9"

### Collective investment schemes (unit investment funds) — scale and trends
- Unit investment funds:
  - End 2014: "1,584" unit investment funds.
  - As of 3Q2015: "1,542" unit investment funds.
  - Decline of "2.3 percent" from 2013.
- Fund type changes (2014):
  - Number of open-end mutual funds (retail-focused): decreased by "5.5 percent".
  - Number of closed-end mutual funds: decreased by "2.2 percent".
  - Closed-end funds comprised "72 percent" of the total number of unit investment funds.
- Assets under management (AUM):
  - AUM decreased by "3.1 percent" to "RUB 569 billion" ("470" as of 3Q 2015).
  - AUM of open and interval funds decreased by "24 percent" to "RUB 92.6 billion".
  - AUM represented "0.13 percent" of GDP.
- Structural note: Mixed investment funds comprised "63.9 percent" of the total net asset value of open and interval funds.
- AUM concentration (end 2014):
  - The ten largest management companies accounted for "84.1 percent" of the total market of open and interval funds.
  - Largest management companies (Table 3, end 2014):
    - Sberbank Asset Management CJSC — AUM "20,074.0" (millions of rubles) — Share "21.9" percent — Number of Funds "19"
    - Raiffeisen Capital LLC — AUM "16,304.1" — Share "17.8" percent — Number of Funds "18"
    - URALSIB LLC — AUM "8,933.9" — Share "9.8" percent — Number of Funds "19"
    - Alfa-Capital LLC — AUM "7,706.6" — Share "8.4" percent — Number of Funds "17"
    - Trust Investment Company, LLC — AUM "6,918.7" — Share "7.6" percent — Number of Funds "3"

### Markets — Moscow Exchange Group (MEG) and market activity (2010–2015 highlights)
- MEG operates trading markets in equities, bonds, derivatives, foreign exchange, money markets, and precious metals; operates National Settlement Depository and National Clearing Centre.
- Largest shareholders of MEG as of November 2014: CBR ("11.75 percent"), Sberbank ("9.9 percent"), Vnesheconombank ("8.4 percent"), European Bank for Reconstruction and Development ("6.1 percent"), Shengdong Investment Corporation ("5.6 percent").
- Market behavior in 2014 driven by geopolitical events, fall in oil prices, and capital outflows.
- Turnover ratio of domestic share market: "36.0 percent" in 2014.
- Comparing with maximum level in 2009, domestic share market liquidity decreased by "2.6 times".
- Investor profiles (2014):
  - Private investors rose from "838,000" to "906,000".
  - Number of active private investors’ customers decreased slightly to "62,500" from "62,900".
  - Private (resident) investors make up "90.3 percent" of the total number of transactions on the Moscow Exchange and invest "89 percent" in shares.
  - Corporate investors increased by "8.8 percent" to "19,800".
  - Active corporate investors decreased to "1,422" companies or "4.0 percent" of total investors.
- Capitalization of Russian Market (Equities) on MEG (2010–14):
  - 2010: "29,253.2" (billions of rubles) — "1,379.2" (billions of U.S. dollars, Estimate) — "63.2" percent of GDP
  - 2011: "25,708.0" — "1,096.2" — "46.1" percent of GDP
  - 2012: "25,212.5" — "1,079.4" — "40.4" percent of GDP
  - 2013: "25,323.8" — "1,041.1" — "38.0" percent of GDP
  - 2014: "23,155.6" — "517.3" — "32.6" percent of GDP
- Number of listed companies on MEG (2011–14):
  - 2011: Number of Share Issuers "320" — Number of Share Issues in Quotation Lists "119"
  - 2012: Number of Share Issuers "275" — Share Issues "118"
  - 2013: Number of Share Issuers "273" — Share Issues "110"
  - 2014: Number of Share Issuers "254" — Share Issues "106"
  - Note: There are currently "30,360" open joint-stock companies; less than one percent are represented on the stock exchange.
- Market performance in early 2015: MICEX Composite Index had a strong start, then traded in a narrow range for the rest of the year.

### Debt, repo, ETF, and derivatives markets (2014)
- Corporate bonds:
  - New issues totaled "RUB 1.8 trillion", "6.6 percent" more than previous year.
  - Off-market (OTC) placements share grew to "68 percent".
  - Number of bond issuers on MEG: "323".
  - Total value of exchange transactions (cost, excluding repo and placements): "RUB 4.3 trillion" ("30 percent" lower than 2013).
  - Secondary market on-exchange bonds: "30 percent" of secondary market volume.
  - "45 percent" of turnover was in bonds of "10" issuers.
- Government bonds:
  - Value of government bond issues traded on exchanges increased by "26 percent" to "RUB 4.7 trillion" or "6.6 percent" of GDP.
  - Exchange secondary market volume decreased by "36 percent" to "RUB 3.8 trillion".
- Sub-federal and municipal bonds:
  - Value of issues less than "RUB 500 billion".
  - Trading value (excluding placements and repo) was "RUB 379 billion".
- Repo market:
  - Value of exchange repo transactions on MEG in 2014: "RUB 183 trillion", "10 percent" lower than in 2013.
  - Share of corporate bonds in total transaction volume: "39 percent".
  - Share of direct repos with CBR reached "55 percent" at year end.
- Unit investment funds trading on MEG:
  - Value of trading in investment units: "RUB 177.3 billion", "+28.6 percent" over 2013.
  - ETFs aggregate volume: "RUB 3.5 billion" (sevenfold growth); ETFs accounted for about "2 percent" of total value of transactions in investment units.
- Derivatives:
  - Value of trading in futures contracts for securities and stock indices declined to "RUB 28,929 billion" ("-8.2 percent" versus 2013).
  - From 2011 maximum volumes, decrease was "37.3 percent".
  - Proportion: "87 percent" futures and "13 percent" options.

### Legal and regulatory framework — complexity and consequences
- Legislative instability and complexity:
  - Primary laws are often amended several times a year (example: Securities Law amended "five times in 2015").
  - New or amended legislation does not always comprehensively amend or repeal previous provisions, producing overlaps and inconsistencies (examples: SRO law and residual SRO provisions).
  - Provisions on a single matter can be scattered across instruments, complicating compliance (examples: obligations on CBR staff; disclosure requirements on substantial shareholdings).
  - Some instruments contain inappropriate procedural detail (example: exact number of copies of a quarterly report).
- Practical consequences:
  - Increased compliance costs due to frequent legislative changes, overlaps, need for interpretation, implementation, training, and payment of fines.
  - Micromanagement inhibits innovation; firms may comply with the letter but not the spirit of rules.
  - Examples of gaps:
    - Internal controls provisions focus on appointment and duties of a Compliance Officer but omit obligations to conduct risk assessments, prepare policies following risk assessment, develop management information systems, train staff on firm risk appetite, and re-evaluate policies annually.
    - Conflicts of interest provisions do not require identification, avoidance, management, or declining to act in conflicts.
    - Customer information rules lack an overarching requirement to obtain all information necessary to assess suitability.
- Principles for resolving inconsistencies:
  - CBR described principles: later laws override former ones; more specific laws override general ones; courts tend to adopt interpretations that restrict liberty least — but these may not always provide clarity.

### Enforcement, inspections, and supervisory capacity
- Enforcement powers are comprehensive but enforcement capacity is constrained:
  - For "19,000" nonbank licensees across CBR there were "499" unscheduled inspections and "97" scheduled inspections in 2014.
  - Only "250" inspectors are available to inspect all these licensees.
  - Most onsite visits are unscheduled; routine scheduled inspections are too few to be an effective compliance program.
- CBR is moving toward SRO-based frontline enforcement; this transformation needs careful management and will alter resource needs.
- Market abuse criminalization: criminalization only in 2013; criminal penalties available only since 2015; to date administrative penalties have primarily been imposed.
- International cooperation:
  - CBR signed the IOSCO MMoU in 2015 and is actively responding to information requests.
  - Amendments to the Central Bank Law allow CBR to obtain confidential information in response to requests from foreign authorities, but unsolicited assistance remains prohibited in law.

### Issuers, disclosure, and accounting
- Disclosure regime:
  - Legal requirement to disclose all material facts exists, but in practice disclosures are limited to a list of specifically required items; disclosures under general categories amount to "just over 1 percent" of disclosures.
  - No formal derogation for state or commercial secrets, but omissions are made and accepted without effective statutory safeguards.
  - Exchange does not monitor continuing disclosure; CBR states it is under an obligation to do so.
  - Recommendation: Strengthen obligation to promptly disclose any matter reasonably expected to affect value of securities, monitor compliance, and enforce via appropriate action.
- IFRS adoption:
  - Companies with securities offered to the public to adopt IFRS by "2019".
  - Market perception: of those subject to IFRS requirement, only "60–70" companies that seek listings on foreign markets presently comply with this requirement in substance.
  - Many companies use Russian Accounting Standards (RAS) as base for narrative disclosures; formal financial statements may be prepared in both RAS and IFRS.

### Auditors, CRAs, and evaluative services
- Audit oversight:
  - MoF heads an oversight regime with SRO contribution; Audit Council recommends standards; FFFSS enforces for public interest companies.
  - All auditors and audit firms must belong to one of five competing SROs.
- Independence concerns: market perception of audit practices breaching substance of independence principles; recommendation to strengthen enforcement.
- CRAs:
  - New CRA Law in place but detailed regulations not fully in place; at assessment time no CRA could register.
  - CBR Regulation No 521-P dated January 17, 2015 applies; on February 29, 2016 one business company applied to be registered under Regulation No 521-P as a credit rating agency.
  - Enhancements needed: CBR powers to collect further information from applicants; stronger integrity and recordkeeping requirements.
- Evaluative services: CBR lacks a process to identify new evaluative services warranting regulation; investment advice not yet regulated.

### Licensing, fit-and-proper criteria, and intermediary prudential framework
- All market intermediaries must be licensed and are evaluated by CBR, but criteria need enhancement and capital requirements should be risk-tailored.
- Findings:
  - CBR is the licensing authority but cannot impose a license condition.
  - Criteria cover competence, integrity, and financial standing, but integrity provisions are too narrow and inflexible.
  - Legal entities seeking licenses must demonstrate internal controls, risk management, and capital; capital requirements are flat-rate and not risk-based.
- Regulatory gaps:
  - Insufficient discretion for CBR to assess integrity tailored to individual and post.
  - Lack of appropriate criteria for judging risk management and internal controls.
  - Absence of early warning reporting for capital deterioration and limited CBR powers to take preventative action.
- Policy recommendations:
  - Develop criteria for judging adequacy of risk management and internal controls.
  - Enable CBR to judge willingness and capacity of applicants to comply.
  - Implement risk-based capital requirements.
  - Institute early warning reporting for capital deterioration and enhance powers to avoid default.
  - Develop a contingency plan for capital deterioration or default.

### Exchanges, trading systems, short selling, and surveillance
- Exchanges and non-exchange trading systems are permitted and required to be licensed; no non-exchange trading systems currently operating or pending applications.
- MOEX has a near monopoly in many markets, particularly equities; HFT is a significant factor.
- Key supervisory and market weaknesses:
  - No effective controls or disclosure of on-exchange short selling; absence of a surveillance regime and no mechanism for providing short selling information to participants or CBR.
  - No inspections of the exchanges to date.
  - Periodic reports by intermediaries focus mostly on financial data and not risk indicators.
  - Beneficial ownership information may not always be available in practice.
  - FSD’s threshold for concern on single exposures is "100 percent" of an entity’s own funds and is judged too high; assessors proposed lowering possibly to a maximum of "25 percent".
- Numeric and factual findings to preserve:
  - "just over 1 percent" of disclosures fall outside law's listed items.
  - Inspection staffing: "250 inspectors for 19,000 nonbank entities".
  - FSD threshold: "100 percent"; proposed reduced threshold: "possibly to a maximum of 25 percent".
  - Proposed reporting triggers and thresholds referenced: deterioration in excess capital of "50 percent"; report if capital falls below "120 percent" of the minimum; reconciliations daily/weekly/monthly/quarterly as specified.
  - Potential administrative sanctions cited as equivalent to loss of "three years’ salary".

### Principal implementation weaknesses (selected IOSCO Principles)
- Principle 1: Complex laws/regulations cause inconsistent obligations; investor understanding of rights weak.
- Principle 2: Ministers of Finance and Economic Development may attend CBR Board meetings with recorded opinions — perceived political involvement; lack of legal protection for staff performing supervisory investigations.
- Principle 3: CBR operational budget set by National Financial Board where CBR Governor has one vote among "12".
- Principle 8: CBR reactive rather than proactive on potential conflicts of interest; no process to identify potential conflicts.
- Principles 9–15: Conflicting SRO laws; enforcement regime not fully effective; inspections not risk-based or routine; no onsite inspection of MOEX to date.
- Principle 13: Powers to share information exist via MMoU but no power to initiate unsolicited sharing; confidentiality conflicts exist between Investment Fund Law and Central Bank Law.
- Principle 16: No overriding disclosure obligation; Disclosure Regulation’s "50 detailed matters" approach leaves gaps.
- Principle 18: IFRS legal obligation complex and not comprehensive; many companies still use RAS for narrative prospectuses.
- Principle 30: Capital and liquidity requirements not tailored; no liquidity requirement; no daily capital calculation; no obligation to report deterioration to CBR.
- Principle 31: Fundamental client-protection and conduct obligations absent: no overarching duty of care, no mandatory suitability information collection, no mandatory written client agreement requirement with fees and charges, client money/accounts reconciled only monthly/quarterly.
- Principle 32: No documented contingency plan for intermediary failure; no early warning systems; limited preventive powers.
- Principles 33–35: Exchange licensing thorough but supervision relies on offsite documentation; lacks onsite testing.

### Recommended action areas (high-level)
- Simplify and rationalize the regulatory framework; identify and repeal or amend conflicting provisions when issuing new instruments; consolidate subject-related provisions or cross-reference them.
- Proceed with CBR simplification exercise as soon as possible; review degree of procedural detail and favor high-level obligations supported by essential detail.
- Consider legal protections (immunity) for CBR staff conducting regulatory functions and reassess Board attendance rights of Ministers.
- Reconsider budget-setting to strengthen CBR operational independence.
- Strengthen inspection resources and implement a risk-based routine inspection program, including regular inspections of exchanges (MOEX).
- Introduce an overriding record-keeping obligation for securities businesses with minimum retention of "five years".
- Amend laws to permit CBR to share confidential information on an unsolicited basis and resolve confidentiality conflicts between Investment Funds Law and Central Bank Law.
- Amend Securities Law to create an effective overarching obligation to disclose any material fact affecting security price; refine the "50 detailed matters" list; give CBR power to approve or deny disclosure deferrals.
- Strengthen capital and liquidity regimes for securities intermediaries: risk-based capital, liquidity requirement, daily capital calculations, reporting triggers (e.g., deterioration of excess capital by "50 percent"; report if capital falls below "120 percent" of the minimum).
- Impose comprehensive conduct-of-business obligations: due care and diligence duties, management responsibility for compliance, risk assessment and ongoing review, client identification and beneficial ownership checks, segregation and daily reconciliation of client money, more frequent reconciliation of client assets (weekly for high-intensity trading clients, monthly for others, quarterly for dormant accounts).
- Develop contingency plans and legal powers to manage intermediary failure, including provisional administrators and crisis playbooks; exercise and test via "war game" for funds.
- Review and enhance controls and surveillance for short selling on MOEX and collaborate with MOEX on disclosure and market practice reforms; consider lowering single-exposure threshold from "100 percent" to "possibly to a maximum of 25 percent".
- Finalize implementing regulations for CRAs so the new CRA law can be enforced and registered CRAs may operate; bring investment advice into regulation.

### Additional institutional and legal context
- Business laws grounded in Civil Code chapter 4, Federal Laws 208-FZ and 14-FZ; recent amendments (Federal Law 99-FZ and 210-FZ) changed company types and investor protections.
- Insolvency Law amended in 2014 for financial institutions; 2015 amendments to Federal Law No.7-FZ empowered NCC to segregate member positions from client positions.
- Judicial system: constitutional separation of powers and formal judicial independence; World Bank Global Competitiveness Report 2014–15 rankings: Judicial independence "109th" out of "144"; Efficiency of legal framework in settling disputes "110th"; Efficiency in challenging regulations "99th"; Protection of property rights "120th".
- Legal profession and prosecutorial structures detailed, including Investigative Committee reporting arrangements and bar structure.
- Credit bureaus: "21" functioning credit bureaus; as of December 2014, "61 million" borrowers recorded ("60.7 million" individuals and "358,000" legal entities); credit bureaus supervised by CBR under Federal Law “On Credit Histories”.

_Italic: Source: EXECUTIVE SUMMARY and selected sections, _cr16233 — International Monetary Fund assessment content provided in the supplied document._

### EXECUTIVE SUMMARY ___________________________________________________________________________ 5

### _cr16233 - EXECUTIVE SUMMARY ___________________________________________________________________________ 5

### EXECUTIVE SUMMARY — key observations and challenges
- CBR has completed a two-year process of assuming powers and functions of the previous standalone regulator of the securities markets and the insurance industry, including absorbing 1,300 new staff and inducting them into the organizational structures of the central bank.
- CBR’s remit now includes supervisory functions covering a disparate group of markets and professional market participants, and a developmental role for nonbank financial markets emphasizing proportionate regulation and optimization of the regulatory burden.
- Significant work remains to approach good international practice as a securities regulator. Departures from IOSCO requirements arise from:
  - absence of specific requirements in the legal framework;
  - insufficient implementation in practice; and
  - a complex legislative structure with many overlapping and in some cases inconsistent provisions that impose detailed obligations but fail to impose overarching duties required by IOSCO.
- Recent regulatory changes in some areas (for example, credit rating agencies) follow international standards; further initiatives are required in other areas, including:
  - conflicts of interest identification;
  - improving standards of management in professional market participants;
  - creation of legal gateways enabling supervisors to provide guidance on CBR’s reasonable expectations (risk management, internal control systems, fair treatment of clients);
  - client-facing rules and improved customer profiling to protect unsophisticated retail clients;
  - improvements to prospectus and continuous disclosure regimes for listed companies; and
  - clearer, sufficiently accurate disclosure documentation for unit investment funds to aid retail investor understanding.
- Enforcement capacity is a major challenge and will require additional resources:
  - CBR is responsible for 19,000 nonbank licensees.
  - Inspection team size: 250 members.
  - In 2014, scheduled (routine) inspections carried out: 97.
  - In 2014, unscheduled inspections (investigations into complaints or allegations): 499.
  - Greater use of supervisory tools other than inspections and development of SRO responsibilities may reduce long-term CBR burden but increase short-term needs while the regime is developed.
- Accounting standards transition is complex: move to IFRS is underway while a requirement to publish accounts according to Russian Accounting Standards remains.
- On insider trading and market manipulation, investors will expect to see criminal prosecutions presented in court in the near term to demonstrate enforcement.

### INTRODUCTION — assessment scope and methodology
- Assessment period and team:
  - Assessment conducted from February 3–16, 2016 as part of the Financial Sector Assessment Program (FSAP).
  - Assessors: Richard Pratt and Richard Britton, external Monetary and Capital Markets Department experts.
- Context:
  - Last IOSCO assessment was conducted in 2011 when the statutory regulator was the Federal Service for Financial Markets (FSFM).
  - FSFM powers and functions were subsumed into CBR in September 2013; integration completed during 2015.
- CBR strategy:
  - CBR created a three-year strategy on financial market development and stability for 2016–18; one goal is creating conditions for the growth of the financial industry with emphasis on enhancing financial market regulation through proportional regulation and optimization of regulatory burden.
- Methodology:
  - Assessment based on IOSCO Principles and Objectives of Securities Regulation approved in 2010 and its Methodology adopted in 2011 and updated in 2013.
  - Principle 38 was not assessed (covered under PFMI); issues related to central counterparties are not covered.
- Information sources:
  - Review of laws, regulations, directions, instruction codes, other documents provided by CBR;
  - Bilateral discussions with senior CBR staff and a CBR self-assessment;
  - Meetings in Moscow with Mr. Sergei Shvetsov, First Deputy Governor of the CBR, senior CBR staff, senior officials at the Ministry of Finance and the Ministry of the Interior, the Moscow Stock Exchange, and private sector representatives.

### REGULATORY STRUCTURE — roles and responsibilities
- CBR:
  - Supervisor and regulator of the financial services sector and the central bank.
  - Established under Federal Law No. 86-FZ of 7/10/2002 “On the Central Bank of the Russian Federation (CBR)”.
  - Assumption of nonbank financial sector powers via Federal Law No. 251-FZ of 7/23/2013.
  - Powers include staff hiring and remuneration policies, central bank functions, monetary policy, payment systems oversight, integrated supervision of financial services sector, and supervision of takeovers and mergers of companies that have issued securities to the public.
- Other government-appointed bodies with regulatory roles:
  - Ministry of Economic Development (MED): administers the Joint Stock Companies Act; disclosure for companies offering securities to the public is responsibility of CBR.
  - Ministry of Finance (MoF): sets accounting and auditing standards; relies on National Organization for Reporting Standards and the Audit Council.
  - Enforcement of audit standards: Federal Financial and Fiscal Service (for public interest companies) and Self-Regulatory Organizations (for all audit firms).
  - SROs of auditors are supervised by the MoF.
  - Federal Anti-Monopoly Service can intervene in markets supervised by CBR.

### MARKET STRUCTURE — A. Market Intermediaries (licenses and trends)
- Licensed intermediaries by CBR include brokers, dealers, investment managers, custodians, and registrars. Investment advisers are not separately licensed. Underwriting is encompassed within brokering and dealing.
- Most intermediaries hold multiple licenses:
  - NAUFOR: 59.7 percent of licensees held licenses as brokers, dealers and investment managers.
  - Of those, 65 percent also had licenses as depositories.
- As of January 21, 2016:
  - Total number of intermediaries: 826 (most holding multiple licenses).
  - This represents a reduction of 18.7 percent over the year.
  - CBR noted the reduction had not had any appreciable effect on trading volume.
- Table of securities licenses (Source: CBR):
  - Broker: 624
  - Dealer: 641
  - Investment Manager: 533
  - Depository: 498
- Trend in license granting and cancellation:
  - Number of new licenses has reduced over time; licences cancelled have exceeded those granted since 2010.
- Market participation and concentration (2014 data):
  - According to NAUFOR, 536 organizations traded on the exchanges in 2014.
  - Top ten firms accounted for 63.9 percent of trading volume (up from 61.9 percent in the previous year).
  - CBR was the most active trader in non-government securities, accounting for 21.4 percent of total turnover (down from 22.7 percent in 2013).
  - CBR market shares by instrument:
    - Corporate bonds: 32.9 percent (CBR dominant).
    - Shares: 3.4 percent.
  - Sberbank Group (CBR holds 50 percent plus one share):
    - Shares market: 15.5 percent (most significant trader).
    - Corporate bonds: 10.0 percent (second largest to CBR).
- Top ten traders in non-government securities by volume (Source: CBR):
  1. CBR — 21.4
  2. Otkrytiye Group — 9.7
  3. Sberbank Rossii Group — 8.9
  4. VTB Group — 8.5
  5. BCS Group — 3.9
  6. Gazprom Group — 3.2
  7. Renaissance Group — 2.5
  8. Vnesheconombank Group — 2.1
  9. Bank Saint Petersburg JSC — 1.9
  10. BC REGION LLC — 1.9
  - Total (top ten): 63.9

### MARKET STRUCTURE — B. Collective Investment Schemes (unit investment funds)
- Unit investment funds (end 2014 and 3Q2015):
  - End 2014: 1,584 unit investment funds.
  - As of 3Q2015: 1,542 unit investment funds.
  - Change: decline of 2.3 percent from 2013.
- Fund type changes (2014):
  - Number of open-end mutual funds (focused on retail investors): decreased by 5.5 percent.
  - Number of closed-end mutual funds: decreased by 2.2 percent.
  - Closed-end funds comprised 72 percent of the total number of unit investment funds (most common type).
- Assets under management (AUM):
  - AUM decreased by 3.1 percent to RUB 569 billion (470 as of 3Q 2015).
  - AUM of open and interval funds decreased by 24 percent to RUB 92.6 billion.
  - AUM represented 0.13 percent of GDP.
- Structural change:
  - Mixed investment funds became the largest group, comprising 63.9 percent of the total net asset value of open and interval funds.

### SELECTED FIGURES AND TRENDS (as presented)
- Market intermediaries total (January 21, 2016): 826.
- Reduction in intermediaries over the year: 18.7 percent.
- Number of nonbank licensees under CBR responsibility: 19,000.
- CBR inspection resources and activity (2014):
  - Inspection team: 250 members.
  - Scheduled inspections carried out: 97.
  - Unscheduled inspections: 499.
- Unit investment funds:
  - End 2014: 1,584; 3Q2015: 1,542.
  - AUM: RUB 569 billion (470 as of 3Q 2015).
  - Open and interval funds AUM: RUB 92.6 billion.
  - Open and interval funds AUM decline: 24 percent.
  - AUM share of GDP: 0.13 percent.
- Concentration of exchange trading (2014): top ten firms accounted for 63.9 percent of trading volume.
- Top trader market share (non-government securities, 2014): CBR 21.4 percent.

*Source: EXECUTIVE SUMMARY, _cr16233 — International Monetary Fund assessment content provided in the supplied document.*

### 22. Since 2007, the share of the ten largest management companies of total AUM has

### _cr16233 - 22. Since 2007, the share of the ten largest management companies of total AUM has

### AUM concentration and largest management companies
- Since 2007, the share of the ten largest management companies of total AUM has been on an upward trend.
- At the end of 2014, the AUM of the ten largest management companies made up 84.1 percent of the total market of open and interval funds.
- Notably, the second largest management company is part of the largest Austrian banking group (by balance sheet size).

- Table 3. Largest Asset Management Companies (end 2014)
  - 1 Sberbank Asset Management CJSC — AUM (In millions of rubles) 20,074.0 — Share in the Total NAV (In percent) 21.9 — Number of Funds 19
  - 2 Raiffeisen Capital LLC — AUM (In millions of rubles) 16,304.1 — Share in the Total NAV (In percent) 17.8 — Number of Funds 18
  - 3 URALSIB LLC — AUM (In millions of rubles) 8,933.9 — Share in the Total NAV (In percent) 9.8 — Number of Funds 19
  - 4 Alfa-Capital LLC — AUM (In millions of rubles) 7,706.6 — Share in the Total NAV (In percent) 8.4 — Number of Funds 17
  - 5 Trust Investment Company, LLC — AUM (In millions of rubles) 6,918.7 — Share in the Total NAV (In percent) 7.6 — Number of Funds 3

### Markets — Moscow Exchange Group (MEG) and market structure
- MEG operates trading markets in equities, bonds, derivatives, the foreign exchange market, money markets, and precious metals.
- MEG operates Russia’s central securities depository (National Settlement Depository) and the country’s largest clearing service provider (National Clearing Centre).
- The exchange was established in December 2011 by merging MICEX and RTS. MEG’s shares are publicly traded on the exchange.
- As of November 2014, the largest shareholders of the Exchange were:
  - CBR (11.75 percent)
  - Sberbank (9.9 percent)
  - Vnesheconombank (8.4 percent)
  - European Bank for Reconstruction and Development (6.1 percent)
  - Shengdong Investment Corporation (5.6 percent)
- Commodities trading is provided by five exchanges (St. Petersburg International Mercantile Exchange; “Exchange Saint-Petersburg” CJSC; Moscow Energy Exchange; Saint-Petersburg Exchange; NAMEX).

### Market behavior in 2014 and liquidity
- Market behavior in 2014 was driven primarily by the evolving geopolitical situation (sanctions by the U.S. and EU), the fall in oil prices, and capital outflows rather than fundamentals.
- The turnover ratio of the domestic share market was 36.0 percent in 2014, slightly greater than the previous year.
- Comparing with the maximum level observed in 2009, the domestic share market liquidity decreased by 2.6 times.

### Investor profiles (2014)
- Number of private investors rose from 838,000 people to 906,000 people.
- Number of active private investors’ customers decreased slightly to 62,500 from 62,900 people in the previous year.
- Private (resident) investors make up 90.3 percent of the total number of transactions on the Moscow Exchange and invest predominantly (89 percent) in shares.
- Number of corporate investors increased in 2014 by 8.8 percent to 19,800.
- Number of active corporate investors decreased to 1,422 companies or some 4.0 percent of the total number of investors.

### Capitalization of Russian Market (Equities) on MEG in 2010–14
- 2010 — In billions of rubles 29,253.2 — In billions of U.S. dollars (Estimate) 1,379.2 — Capitalization as percent of GDP 63.2
- 2011 — In billions of rubles 25,708.0 — In billions of U.S. dollars (Estimate) 1,096.2 — Capitalization as percent of GDP 46.1
- 2012 — In billions of rubles 25,212.5 — In billions of U.S. dollars (Estimate) 1,079.4 — Capitalization as percent of GDP 40.4
- 2013 — In billions of rubles 25,323.8 — In billions of U.S. dollars (Estimate) 1,041.1 — Capitalization as percent of GDP 38.0
- 2014 — In billions of rubles 23,155.6 — In billions of U.S. dollars (Estimate) 517.3 — Capitalization as percent of GDP 32.6

### Number of listed companies on the Moscow Exchange (2011–14)
- 2011 — Number of Share Issuers 320 — Number of Share Issues (ordinary, preferred) in Quotation Lists 119
- 2012 — Number of Share Issuers 275 — Number of Share Issues (ordinary, preferred) in Quotation Lists 118
- 2013 — Number of Share Issuers 273 — Number of Share Issues (ordinary, preferred) in Quotation Lists 110
- 2014 — Number of Share Issuers 254 — Number of Share Issues (ordinary, preferred) in Quotation Lists 106
- Note: Despite the trend of reduction in the total number of open joint-stock companies, there are currently 30,360 such legal entities. Less than one percent of them are represented on the stock exchange.

### Market performance in early 2015
- After a strong start to 2015 the market (as represented by the MICEX Composite Index) traded in a narrow range for the rest of the year.

### Corporate bond market (2014)
- New issues of corporate bonds totaled RUB 1.8 trillion, which was 6.6 percent more than in the previous year.
- The share of off-market (OTC) placements grew sharply to 68 percent.
- Number of bond issuers on the Moscow Exchange remained unchanged at 323 companies.
- The total value of exchange transactions (at cost, without taking into account repurchase agreement (repo) transactions and placements) involving corporate bonds was RUB 4.3 trillion, which was 30 percent lower than in 2013.
- Secondary market trading in on-exchange bonds made up 30 percent of the secondary market volume.
- 45 percent of the turnover was in the bonds of 10 issuers.

### Government bond market (2014)
- Value of government bond issues traded on the exchanges increased by 26 percent (par value) in 2014, reaching RUB 4.7 trillion or 6.6 percent of GDP.
- Exchange turnover was sharply lower—the secondary market volume (at cost, without taking into account repo transactions and placements) decreased by 36 percent to RUB 3.8 trillion for the year.

### Sub-federal and municipal bond market
- Value of these bond issues made up less than RUB 500 billion.
- Value of trading (without taking into account placements of new issues and repo transactions) was RUB 379 billion.
- This market segment has been and remains the most illiquid sector of the domestic debt securities market.

### Repo market (2014)
- Value of exchange repo transactions on the Moscow Exchange in 2014 was RUB 183 trillion, which was 10 percent lower than in 2013.
- Share of corporate bonds in the total transaction volume shrank to 39 percent.
- Share of direct repos with CBR reached 55 percent at the end of the year.

### Unit investment funds (2014)
- Value of trading in investment units on the Moscow Exchange was RUB 177.3 billion, +28.6 percent over 2013.
- Introduction in 2013 of stock exchange trading in foreign exchange traded funds (ETF) was a significant innovation.
- Aggregate volume of transactions in ETF units grew by seven times for the year and made up RUB 3.5 billion.
- ETFs accounted for about two percent in the total value of transactions in investment units.

### Derivatives markets (2014)
- Futures and options trading is dominated by trading in contracts on the MOEX indices.
- In 2014, the value of trading in futures contracts for securities and stock indices declined for the third year in a row to RUB 28,929 billion (-8.2 percent versus 2013).
- From 2011 (maximum trade volumes) the decrease was 37.3 percent.
- Proportion between trade in futures and options was unchanged: 87 percent in futures and 13 percent in options.

### Preconditions — legal and regulatory framework
- The Russian Federation regulatory framework for securities markets is not described as stable and transparent.
- The legislative hierarchy follows civil law principles; the Constitution and a fundamental Civil Code sit at the top.
- CBR can issue by-laws (Regulations, Directions and Instructions) that are binding on federal and local authorities and legal and natural persons; most are directed at securities businesses.

### Key issues identified with legislation and regulation
- Legislation is subject to constant change; primary laws are often amended several times a year (example: Securities Law amended five times in 2015).
- New or amended legislation does not always comprehensively amend or repeal previous provisions, producing overlaps and inconsistencies (example: SRO law and residual SRO provisions in Securities Law and Investment Funds Laws).
- Provisions relating to any one matter can be scattered across many legislative instruments, making full compliance and interpretation difficult (examples: obligations on CBR staff; disclosure requirements relating to substantial shareholdings).
- The nature of legislative provisions changes across laws; duties and rights (e.g., confidentiality, licensing discretion) can be explicit in some laws and implicit in others.
- Introduction of new requirements is not always accompanied by repeal of existing requirements; binding requirements in CBR instruments sometimes overlap with provisions published by the former securities regulator.
- Some legislative instruments contain requirements at an inappropriate level of detail (example: exact number of copies of a quarterly report and how to indicate they have been read).

### Principles for resolving inconsistencies and practical implications
- CBR described legal principles for resolving inconsistencies:
  - Later laws override former ones.
  - More specific laws override more general ones.
  - Courts tend to adopt interpretations that restrict liberty the least.
- These principles may not always provide clarity; judicial decisions may be required in ambiguous cases.

### Historical and institutional context
- Historical suspicion of state agencies in the Duma and public has milited against granting broad discretion to agencies, prompting detailed specific requirements rather than overarching obligations.
- Detailed requirements have led to overlaps, loopholes and gaps, necessitating frequent new and amended regulations.

### Consequences and costs
- Increased compliance costs due to:
  - Need for staff to track frequent legislative changes, identify overlaps, obtain interpretation, implement changes, update procedures and training.
  - Payment of fines for failure to comply with detailed rules.
  - Micromanagement that inhibits innovation and development.
  - CBR spending considerable time explaining regulatory intentions.
- Focus on detailed rules leads to:
  - Overlooking of overarching principle-based requirements.
  - Missing of key requirements essential to effective systems (examples):
    - Internal controls regulation focuses on appointment and duties of a Compliance Officer but omits obligations to conduct risk assessments, prepare policies and procedures following risk assessment, develop management information systems to monitor effectiveness, train staff on firm risk appetite, and re-evaluate policies annually.
    - Provisions on conflicts of interest for securities firms are incomplete; they do not require identification, avoidance, management, or declining to act in conflicts.
    - Detailed customer information requirements exist but lack an overarching requirement to obtain all information necessary to assess suitability.
  - Firms complying with the letter but not the spirit of rules (examples: audit independence practices; company disclosures consistent with detailed requirements but not with the general principle that all material matters affecting securities price should be disclosed).

### Enforcement, comprehension, and rule of law concerns
- The complex regulatory regime is difficult to comprehend and enforce; some relevant regulations (e.g., Regulation 44 of 1998) were identified late or after the mission, suggesting CBR may not have a complete picture of applicable regulations.
- CBR confirmed it will not take enforcement action under the SRO law against securities firms for failing to comply with non-existent SRO Basic Standards.
- It is not appropriate to have legal and regulatory provisions that cannot be complied with and must be ignored; tolerating mandatory requirements that are impossible to comply with undermines the principle of the rule of law.
- The reluctance to draft general overarching requirements is gradually diminishing; some more general obligations exist (e.g., adequate risk management and systems to identify and monitor conflicts of interest), but supporting detail is often lacking and expectations of CBR are not always clear.

*Source: _cr16233 - 22. Since 2007, the share of the ten largest management companies of total AUM has*

### 42. A reasonable balance between high level obligations, supported by a list of detailed

### 42. A reasonable balance between high level obligations, supported by a list of detailed

### Simplification of securities legislation (paragraphs 42–43)
- Striking a balance: A reasonable balance between high level obligations and a list of detailed but not exclusive examples can be clearly struck and has sometimes been struck in the securities legislation.
- Assessors’ encouragement: CBR is considering a simplification exercise and is encouraged to proceed as soon as possible.
- Specific suggestions for the simplification exercise:
  - All new legislative instruments should identify existing conflicting provisions (especially where these exist in laws administered by CBR) and repeal or amend them to remove potential inconsistency.
  - Provisions relating to a particular subject should, so far as possible, be brought together or at least cross referenced so that obligors can find all related obligations in a single place.
  - The degree of detail required should be reviewed to limit the extent to which the actions of securities firms are micromanaged.
  - Greater use should be made of high-level obligations so that those subject to the law can see the overall objective of the regulations and do not have scope for slipping through gaps created by differing detailed provisions.
  - Overarching requirements should be supported by sufficient detail focusing on the key elements that CBR regards as essential.
  - CBR should seek to limit the number of amendments (an objective easier to meet if there is less minute detail in individual instruments).

### Business laws (paragraph 44)
- Legal foundations: Business laws in Russia are based on chapter 4 of the Civil Code, the 208-FZ Federal Law on Joint Stock Companies and the 14-FZ Law on Limited Liabilities Companies.
- Recent major amendments: Federal Law 99-FZ and Federal Law 210-FZ (from 2014 and 2015) changed company types allowed, increased protection of investors holding Russian local securities, and improved participation in corporate actions (for example by allowing e-voting and e-proxy voting).
- Insolvency and clearing:
  - The Insolvency Law was amended in 2014 to incorporate changes in insolvency procedures for financial institutions.
  - In 2015, amendments to Federal Law No.7-FZ “On Clearing and Clearing Activities” empowered the National Clearing Center (NCC) to effectively segregate member positions from their client positions.
  - The current legal structure meets requirements for close-out netting under ISDA master agreements and the global master repo agreement of the International Capital Markets Association.
- Other important laws: state registration of legal entities and individual entrepreneurs; fundamental principles on notaries; trade; consumer rights protection; combating money laundering and the financing of terrorism (AML/CFT); the Land code; the CBR Law; and the Tax code.
- Beneficial ownership and client identification:
  - In 2013, a requirement was introduced for financial institutions to identify clients, clients' representatives, and beneficial owners and to collect information on their reputation and business purposes.
  - The definition of “beneficial owner” was clarified and is consistent with the FATF Forty Recommendations Glossary.

### Judicial system (paragraphs 45–48)
- Constitutional basis: Judicial power is formally independent from legislative and executive powers and is regulated by the Constitution, the Code of Criminal Procedure, the Code of Civil Procedure, the Code of Administrative Procedure, the Code of Arbitration Procedure, and the 1996 Federal Constitutional Law on the Judicial System.
- Judicial duties: The Constitution requires courts alone to administer justice and requires that all judges shall be independent and obey only the Constitution and the law.
- Financing: Courts are financed solely from the federal budget to ensure independent administration of justice.
- Court types and proceedings:
  - Judicial power exercised via constitutional, civil, arbitration, administrative, and criminal proceedings; examination of cases in all courts is open.
  - Judicial system components: Constitutional Court of the Russian Federation, the Supreme Court of the Russian Federation, federal courts, district courts, magistrate courts, military courts, and arbitration courts.
- Judicial appointments:
  - All judges of the Supreme Court are appointed by the Council of the Federation of the Federal Assembly upon recommendation of the President.
  - All other judges, including military and arbitration, are appointed by the President of the Russian Federation.
- International ranking (World Bank Global Competitiveness Report 2014–15):
  - Judicial independence: 109th out of 144.
  - Efficiency of legal framework in settling disputes: 110th.
  - Efficiency in challenging regulations: 99th.
  - Protection of property rights: 120th.

### Legal profession (paragraphs 49–53)
- Governing laws: Constitution, Law on the Status of Judges, Law on Attorneys’ Practice and the Bar, and the Foundations of the Legislation on Notary.
- Main legal professions: public prosecutor, investigator, judge, attorney (advokat), and notary.
- Public prosecution service:
  - Composed of the Prosecutor General’s Office, prosecutor’s offices of the subjects of the Russian Federation, city, district and other territorial prosecutor’s offices, and military and other specialized prosecutor’s offices.
  - The Prosecutor General is appointed and removed by the Federation Council by recommendation of the President; term of office is five years.
  - Prosecutors and investigators must not be members of elective or other bodies set up by state authorities and local self-government bodies.
- Investigative Committee of Russia:
  - Main federal investigating authority; since 2011 not included in government structure and only the President carries out control.
  - Chairman is appointed and dismissed by the President without approval of any legislative body and reports annually to the President.
- Licensing and bar structure for lawyers:
  - Lawyers must have a license to practice law to appear in court on criminal matters.
  - Under the 2002 Law “On Attorneys’ Practice and the Bar,” each Russian region has a single bar body called Bar Chamber.
  - Lawyers need to be a member of one such Bar Chamber to be recognized as an attorney.

### Credit bureaus (paragraphs 54–55)
- Number and coverage:
  - Russia has 21 functioning credit bureaus according to the State Register of Credit Bureaus.
  - As of December 2014, the number of borrowers whose information is recorded is 61 million (60.7 million are individuals and 358,000 are legal entities).
  - Some credit bureaus are owned by banks.
- Supervision and legal framework:
  - Credit bureaus are supervised by CBR.
  - The Federal Law “On Credit Histories” entitles CBR to keep the central catalogue of credit histories which informs users, subjects of credit histories, and some other persons defined by law about the location of credit histories.
  - CBR has the power to request and receive credit history reports from credit bureaus.

### Main findings — Principles relating to the regulator (Principles 1–8) (paragraph 56)
- Progress and integration:
  - CBR is making significant advances in regulation and supervision of financial markets since taking over responsibility for this sector.
  - Full integration of the 1,300 staff of the FSFM was achieved only in 2015.
- Governance concerns:
  - Some concerns about direct involvement of government at the Board level and in setting the bank’s budget.
  - A more significant concern is lack of legal protection for staff in the proper performance of supervisory duties.
  - The Central Bank Law and other legislative requirements impose high standards of personal conduct and ethics on CBR staff, but greater clarity would be beneficial.
- Compliance with IOSCO:
  - On systemic risk in securities markets and perimeter policing, CBR meets IOSCO standards with only minor issues in the latter case.
  - More work needed on developing an effective regime to deal with conflicts of interest and misaligned incentives.

### Main findings — Self-regulatory organizations, enforcement, and cooperation (Principles 9–15) (paragraph 57–58)
- Enforcement resources and approach:
  - CBR has a comprehensive set of enforcement powers and is moving to a more risk-based approach, but resources devoted to supervision and particularly inspections are inadequate.
  - CBR enforcement powers cover most principle requirements and are used to identify and remove securities firms which conduct little or no securities market activity.
  - For remaining firms, CBR focuses on identifying breaches of many detailed rules and applying penalties.
- Inspection statistics and capacity (2014):
  - For the 19,000 nonbank licensees supervised by CBR across all financial sectors there were 499 unscheduled inspections and 97 scheduled inspections in 2014.
  - Only 250 inspectors are available to inspect all these licensees.
  - The number of routine scheduled inspections is far too low to be described as an effective compliance program.
- Inspection practices:
  - Most onsite visits to firms are “unscheduled”—investigations arising from complaints or suspicions.
  - Securities firms report CBR inspectors are beginning to engage in useful qualitative discussions on effectiveness of risk management.
- Role of SROs:
  - CBR is moving toward a regime where front line enforcement will be the responsibility of SROs, transforming their role—this transformation needs careful management.
- Market abuse and criminalization:
  - Market abuse was criminalized only in 2013 and criminal penalties became available only in 2015; as yet only administrative penalties have been imposed.
- International cooperation and legal ambiguities:
  - CBR became a signatory to the IOSCO MMoU in 2015 and is actively responding to requests for information.
  - Amendments to the Central Bank Law allow CBR to obtain confidential information in response to requests from foreign authorities.
  - Some confidentiality duties contain explicit gateways to allow disclosure when permitted by law, but this practice needs to be comprehensive.
  - The Central Bank Law prohibits provision of unsolicited assistance; this restriction needs removal.

### Main findings — Issuers (Principles 16–18) (paragraphs 59–60)
- Disclosure regime:
  - Disclosure provisions on issuers are reasonably comprehensive, but continuing disclosure obligations need strengthening.
  - Companies that have issued shares or bonds to the public must publish prospectuses and quarterly and annual reports.
  - There is a general obligation to disclose all material facts in a prospectus and a continuing obligation to disclose all material facts that might affect the price of a security.
  - In practice, disclosures are mostly limited to a list of specifically required disclosures in the law, which excludes many significant matters (e.g., a material change in prospects or risks, or important events affecting performance and profits).
  - Such significant disclosures fall under “any other matter” in the law; CBR expects significant disclosures to be made under that category, although just over 1 percent of total disclosures are made on this basis.
  - There is no formal derogation from the disclosure obligation for state or commercial secrets, although such omissions are made and accepted without effective statutory safeguards.
  - The exchange does not monitor continuing disclosure obligations by issuers, though CBR states it is under an obligation to do so.
  - Recommendation: Strengthen obligation to promptly disclose any matter reasonably expected to affect value of securities, monitor compliance, and enforce via appropriate action.
- IFRS adoption and practice:
  - Requirements to adopt IFRS are in place for many companies, with remaining companies with securities offered to the public coming into IFRS by 2019.
  - Market perception: of those currently subject to the IFRS requirement, only those 60–70 companies that seek listings on foreign markets presently comply with this requirement in substance.
  - General practice: other companies use Russian Accounting Standards (RAS) as the basis for narrative and other disclosures in prospectus, annual reports, and quarterly reports; formal financial statements prepared according to both RAS and IFRS are included in the Appendix.
  - CBR describes RAS as differing from IFRS mostly with regard to a focus (in practice, although not in principle) on form rather than substance, potentially producing very different results during asset value volatility.
  - Recommendation: Ensure full compliance with IFRS in all financial reporting.

### Main findings — Auditors, CRAs, and evaluative services (Principles 19–23) (paragraphs 61–62)
- Audit oversight and SROs:
  - Ministry of Finance (MoF) heads an oversight regime allowing auditing SROs to contribute but not take final decisions on standards; enforcement by both MoF and SROs of auditors.
  - MoF appoints an independent Audit Council to consider detailed proposals from SROs; Audit Council takes final decisions on what to propose to MoF; MoF as policy accepts Audit Council recommendations.
  - Audit Council approves standards of ethics and independence enforced by SROs and MoF (through the Federal Fiscal and Financial Supervision Service (FFFSS)); SRO enforcement is monitored by MoF.
  - FFFSS enforcement focuses on auditors of public interest companies (including all listed companies).
  - All auditors and audit firms must belong to one of five competing SROs and meet qualification and continuing professional development obligations.
- Independence concerns:
  - Independence provisions in the Law largely describe prohibited relationships; Code of Ethics and Independence Rules adopts a more principle-based approach.
  - Market perception: many audit firms adopt practices breaching the substance of independence principles though not necessarily specific statutory provisions.
  - Recommendation: Enhance enforcement regime to address independence issues.
- Credit Ratings Agencies and other evaluative services:
  - A new CRA Law is in place but cannot yet be fully enforced and there are no effective requirements for other evaluative services.
  - CRA law covers registration, disclosure, conflicts of interest, methodology, and internal governance consistent with IOSCO Code of Conduct and IOSCO CRA Principle.
  - Enhancements needed: CBR powers to collect further information from license applicants, stronger integrity requirements, and an overarching recordkeeping provision.
  - At the time of assessment, detailed regulations were not fully in place; therefore no CRA could register and the law could not be enforced.
  - CBR lacks a process for identifying new evaluative services that may warrant regulation.
  - CBR proposes to bring investment advice into regulation; until then, no specific requirements exist for analysts employed by brokers.
  - Detailed independence requirements for appraisers are in a Code of Ethics and Independence prepared by SROs; these were not supplied to the assessors.

### Main findings — Collective investment schemes (Principles 24–28) (paragraph 63)
- Market scale and systemic risk: The market sector is small and does not raise systemic risk concerns; hedge funds and money market funds are not a significant factor.
- Licensing and custodians:
  - Operators of collective investment schemes require a license from CBR; custodians (specialized depositories) are mandatory.
  - Integrity tests for licensees should be enhanced.
  - Operators and custodians are subject to capital and organizational requirements.
  - Operators are subject to conduct of business requirements, but improvements are needed.
  - Agents who market shares or units are also subject to licensing.
  - CBR supervises operators, custodians, and agents.
- Reliance on specialized depositories: The regulatory framework places strong reliance on specialized depositories to ensure operators comply with fund rules, the law, and CBR regulatory acts.
- Supervision and legal form:
  - Risk-based supervision is being applied comprehensively and constructively.
  - Legal form of CIS and rights of share and unit holders are well established.
  - There is a disclosure regime with mandatory documentation standards, but improvements should be made.

_Italic: Source: _cr16233 - 42. A reasonable balance between high level obligations, supported by a list of detailed_ (PDF)._

### 64. All market intermediaries must be licensed and are subject to an evaluation by CBR,

### 64. All market intermediaries must be licensed and are subject to an evaluation by CBR, but the criteria need to be enhanced and the capital requirements tailored to risk.

### Findings
- CBR is the licensing authority (although it cannot impose a license condition).
- The criteria cover competence, integrity, and financial standing.
- The detailed provisions on integrity are too narrow and inflexible, giving insufficient discretion to CBR to determine what matters are relevant to the individual and the post in question.
- The legal entity for which a license is sought must demonstrate compliance with a range of matters including internal controls, risk management, and capital.
- Capital requirements are flat rate and not risk-based.

### Regulatory gaps and risks
- Insufficient discretion for CBR to assess integrity-related matters tailored to the individual and the post.
- Lack of appropriate criteria for judging the adequacy of risk management and internal controls.
- Flat-rate capital requirements do not reflect risk profiles.
- Absence of early warning reporting for deterioration of capital and limited CBR powers to take action to avoid default.
- Need for a contingency plan for occurrences of capital deterioration or default.

### Policy recommendations
- CBR should develop appropriate criteria for judging the adequacy of risk management and internal controls.
- CBR should be able to make a judgement on the willingness and capacity of the applicant to comply with their obligations.
- Capital requirements should be risk-based.
- CBR should institute early warning reporting for deterioration of capital while enhancing its powers to take action to avoid default.
- CBR will need to develop a contingency plan for such occurrence.

### Contextual reference
- Principles for the secondary markets (Principles 33–37)

*Source: IMF staff text from the provided content.*

### 65. Exchanges and non-exchange trading systems are permitted, and both are required to

### _cr16233 - 65. Exchanges and non-exchange trading systems are permitted, and both are required to

### Exchanges and trading systems — current situation and market structure
- Exchanges and non-exchange trading systems are permitted, and both are required to be licensed.  
- Currently there are none in the non-exchange category and no applications are pending.  
- The largest exchange, MOEX, has a near monopoly in many of its markets, particularly equities.  
- There are no effective controls or disclosure of on-exchange short selling.  
- High Frequency Trading (HFT) is a significant factor in equity trading.  
- The absence of dark pools (including informal broker crossing networks) increases transparency relative to many jurisdictions.

### CBR supervisory framework, capacities, and limitations (findings)
- Exchanges must be fit and proper to conduct operations, maintain capital, and have rules to ensure fair, orderly and transparent markets; they must comply with CBR requirements and monitor members and listed companies — these areas merit closer examination.  
- The supervisory system is relatively new and has yet to be fully tested in highly stressed market conditions.  
- Criminal enforcement of breaches of insider dealing and market manipulation is new and untested; CBR’s administrative enforcement record is developing a reasonably successful track record.  
- There have been no inspections of the exchanges.  
- Inspection resources are very limited: only 250 inspectors for 19,000 nonbank entities across CBR as a whole and used primarily for unscheduled inspections (investigations) rather than routine compliance checks.  
- Periodic reports submitted by intermediaries focus mostly on financial information and do not include risk management indicators.  
- There is no effective general ongoing obligation to disclose any material fact that could affect the value of securities; in practice disclosures outside the items specifically listed in law account for only just over 1 percent of disclosures.  
- Beneficial ownership information may not always be available in practice.  
- There is a lack of effective controls on short selling of equities on MOEX, including the absence of a surveillance regime, and no mechanism for providing information on short selling to market participants or CBR. The NCC takes effective measures to protect itself from exposure to naked short selling by MOEX members and their clients, but that is not sufficient.  
- FSD’s threshold for concern on single exposures is stated as 100 percent of an entity’s own funds and is judged too high.

### Key numeric and factual findings (preserve exact values)
- "just over 1 percent" of disclosures fall outside the listed items in law.  
- Inspection staffing: "250 inspectors for 19,000 nonbank entities".  
- FSD threshold for concern: "100 percent" of an entity’s own funds.  
- Proposed reduced threshold: "possibly to a maximum of 25 percent".  
- Requirement proposals and thresholds appearing in recommended actions: report deterioration in excess capital of "50 percent"; report to CBR if capital falls below "120 percent" of the minimum; require reconciliations daily/weekly/monthly/quarterly as specified.  
- The assessors note potential administrative sanctions equivalent to the loss of "three years’ salary" as deterrent; prison sentences and other sanctions are also cited.

### IOSCO Principles — selected implementation weaknesses
- Principle 1: Complex interaction of laws/regulations leads to inconsistent obligations across participants; investor understanding of rights is weak.  
- Principle 2: Ministers of Finance and Economic Development may attend CBR Board meetings with recorded opinions — perceived risk of political involvement; lack of legal protection for staff performing regulatory investigations.  
- Principle 3: CBR operational budget set by National Financial Board where CBR Governor has one vote among 12. CBR funds come from retained profit; staffing and training are well resourced.  
- Principle 8: CBR is reactive rather than proactive in identifying potential conflicts of interest; no process to identify potential (as distinct from actual) conflicts.  
- Principle 9: Conflicting SRO laws; new SRO law not fully enforceable due to transitional provisions; primary purpose of SROs in law is member protection and market development, not investor protection.  
- Principle 10/11/12: CBR has comprehensive powers but enforcement regime not fully effective; inspections are not risk-based or routine; few scheduled inspections; no onsite inspection of MOEX to date.  
- Principle 13: Powers to share information exist via MMoU but no power to initiate unsolicited sharing; Investment Fund Law confidentiality conflicts with Central Bank Law disclosure provisions.  
- Principle 16: No overriding disclosure obligation to require disclosure of any material fact affecting price; the Disclosure Regulation’s "50 detailed matters" approach leaves gaps.  
- Principle 18: Legal obligation to apply IFRS is complex and not comprehensive; many obliged companies still use RAS for narrative prospectus disclosures.  
- Principle 30: Capital and liquidity requirements for intermediaries are not sufficiently tailored; no liquidity requirement; no daily capital calculation requirement; no obligation to report deterioration of capital to CBR.  
- Principle 31: Many fundamental client-protection and conduct obligations are absent (no overarching duty of care, no mandatory suitability information collection, no mandatory written client agreement requirement with fees and charges, client money/accounts reconciled only monthly/quarterly).  
- Principle 32: No documented contingency plan for failure of a market intermediary; no early warning systems; limited preventive powers prior to default.  
- Principle 33–35: Licensing of exchanges is thorough (example: merged MICEX and RTS licensing); exchange supervision relies on offsite documentation but lacks onsite testing; transparency on MOEX markets is generally adequate.

### Recommended action areas (high-level bullets from Table 7)
- Simplify and rationalize the regulatory framework to reduce unnecessary complexity while retaining necessary safeguards for market development and investor protection.  
- Consider legal protections (immunity) for CBR staff conducting regulatory functions and reassess Board attendance rights of Ministers.  
- Reconsider budget-setting processes to strengthen operational independence of CBR.  
- Strengthen inspection resources and implement a risk-based, routine inspection program, including commencement of regular inspections of exchanges (MOEX).  
- Introduce an overriding record-keeping obligation for securities businesses with minimum retention of five years.  
- Amend laws to permit CBR to share confidential information on an unsolicited basis and resolve conflicts between Investment Funds Law confidentiality and Central Bank Law disclosure provisions.  
- Amend Securities Law to create an effective overarching obligation to disclose any material fact affecting security price, refine the "50 detailed matters", and give CBR powers to approve or deny deferral of disclosure.  
- Strengthen capital and liquidity regimes for securities intermediaries: risk-based capital, liquidity requirement, daily capital calculations, reporting triggers (e.g., deterioration of excess capital by "50 percent"; report if capital falls below "120 percent" of minimum).  
- Impose comprehensive conduct-of-business obligations on securities firms: due care and diligence duties, management responsibility for compliance, risk assessment and ongoing review, client identification and beneficial ownership checks, segregation and daily reconciliation of client money, more frequent reconciliation of client assets (weekly for high-intensity trading clients, monthly for others, quarterly for dormant accounts).  
- Develop contingency plans and legal powers to manage intermediary failure, including ability to appoint provisional administrators and detailed crisis playbooks; exercise and test via "war game" for funds.  
- Review and enhance controls and surveillance for short selling on MOEX and collaborate with MOEX on disclosure and market practice reforms; consider lowering single-exposure concern threshold from "100 percent" to "possibly to a maximum of 25 percent".  
- Finalize implementing regulations for CRAs so the new CRA law can be effectively enforced and registered CRAs may operate.

*Source: IMF assessment and Table 6–7 findings and recommended action plan in the provided content unit.*

### Introduction

### _cr16233 - Introduction

### Overview and acknowledgements
- The Central Bank of the Russian Federation (CBR) extends its appreciation to the representatives of the International Monetary Fund who worked closely and remotely on the assessment of implementation of the IOSCO Objectives and Principles of Securities Regulation in the Russian Federation.
- Financial sector surveillance conducted by the International Monetary Fund represents a distinct opportunity for understanding the key linkages that affect the stability and vulnerability of the Russian financial sector. The results of the mission have deepened the CBR’s understanding of the improvements to be made, helped to articulate policy recommendations, and could be used for better discussions with market participants.

### Principle 6
- Suggested rephrasing: the Financial Stability Review addresses systemic issues in all segments of the financial markets, including securities markets, when they arise, and these issues are given appropriate focus and analysis.
- Within the CBR, non-banking sector departments’ staff appears to be fully engaged in the work on systemic risk.
- FSCom is responsible for the assessment and analysis of systemic risks and the stability of the financial system, with a special focus on NFIs and systemically important financial market infrastructure.

### Principle 9
- On March 10, 2016, seven SROs were registered under the new SRO law, and four of them are SROs of professional securities firms.
- CBR suggests eliminating inconsistences in the text of Principle 9 implementation assessment.
- Correction to assessment language: CBR sets a list of Basic Standards not later than three months after the first SRO is registered (Article 33(9) of the SRO law), as opposed to the assessment’s statement that the CBR must approve Basic Standards no later than three months after the first SRO is registered.

### Principle 12
- The grade for Principle 12 was downgraded from partly implemented to not implemented; CBR contends this judgment is not substantiated.
- CBR position: specified criteria regarding the competencies of the Chief Inspection are implemented without significant deviations and therefore are partly implemented.
- Inspection data:
  - In 2014 the Chief Inspection carried out 37 onsite inspections of professional securities market participants, including 9 (24 percent) unscheduled inspections.
  - In 2015, 27 onsite inspections of professional securities market participants were carried out, including 4 (15 percent) unscheduled inspections.
  - For asset management companies, the Chief Inspection carried out 43 onsite inspections, including 36 (84 percent) unscheduled inspections in 2014, and 25 onsite inspections, including 13 (52 percent) unscheduled inspections in 2015.
- Observations on inspection processes:
  - Inspections are generally conducted at the suggestion of the off-site team and based on facts regarding deterioration of financial position, breaches of regulations, complaints by clients and federal authorities, profile, exposure and concentration of risk, business transparency, among others.
  - CBR has adopted coordinated onsite inspections of financial groups (including non-institutionalized groups) to identify risks taken by groups and uncover procedures used to mask risks, improving transparency and market discipline.
- Risk-based supervision and inspection findings:
  - In 2014–15, the Chief Inspection carried out onsite inspections of professional securities market participants initiated by the Securities Market and Commodity Market Department implementing risk-based supervision, mainly of relatively small participants with substantial negative information.
  - Violations discovered included requirements of the legislation, absence of assets or significant overvaluation, use of “structured” operations to comply with capital requirements, investment in instruments of dubious quality, and increased risk of deliberate substitution of high-quality and liquid assets.
  - Most inspected professional securities market participants lacked organized internal control and risk-management systems; corporate governance was not compliant with international principles—constituting legislative violations or preventing assessment of declared procedures.
  - Approaches to implementation are constantly improving; examples of best practices were reported during training sessions.
- Clarification on inspection reporting and monitoring:
  - The mission report does not accurately state that a final report of violations, together with an agreed rectification program, is handed to the regulated entity on departure of the inspection team. The final report must not include an agreed rectification program.
  - Monitoring of the elimination of violations found during onsite inspections is not within the competence of the Chief Inspection.

### Principle 16
- Principle 16 assessed as “not implemented” by the mission; CBR disputes this assessment, noting that Russian legislation provides for major requirements for prospectus, financial statements, and disclosure of material facts.
- Relevant legislation cited by CBR:
  - Federal Law No 39-FZ “On the securities market” (Article 24(4), Article 30, 30(2), 30.1)
  - Federal Law “On joint stock companies” (Chapter 13)
  - Regulation of the Bank of Russia dated December 30, 2014, No 454-P
- CBR states these requirements align with IOSCO standards: International Disclosure Standards for Cross-Border Offerings and Initial Listings by Foreign Issuers; International Disclosure Principles for Cross-Border Offerings and Listings of Debt Securities by Foreign Issuers; Principles for Periodic Disclosure by Listed Entities; and Principles for Ongoing Disclosure and Material Development Reporting by Listed Entities, and are enforced by CBR.
- Specific shortcomings and CBR responses:
  - Advertisements during securities offering:
    - Current Russian legislation provides mechanisms to ban offering advertisements before a prospectus is published and prohibits unfair and inaccurate advertisements missing material information.
    - CBR will consider the recommendation to require prior approval of securities advertisements by CBR, which is currently missing.
  - Material facts disclosures:
    - Article 30(13) of the Securities Law defines material fact as any event which may cause a substantial change in securities’ price; Article 30 (4) requires such material events to be disclosed.
    - CBR has the power to require the issuer to make such disclosure by CBR order in case of failure.
    - The list in Article 30 (14) covers most situations requiring meaningful disclosure; the general obligation in Article 30 (4)(13)(14) covers others.
    - Many examples in the mission report alleged as not covered (signing of a major new contract, loss of a major contract, significant change in line of business, decision to acquire or sell significant assets) are actually covered; some items cited—such as profit warnings—are not applicable in Russian tradition.
  - Disclosure derogations and safeguards:
    - Assessors’ statement of explicit derogation for state and commercial secrets is arguable according to CBR: general provisions require disclosure of essential information; if not disclosed, the issuer must provide the reason.
    - When information is withheld as state or commercial secrets under corresponding laws, the issuer must nonetheless disclose that the information was not disclosed because it constitutes a state or commercial secret.
    - CBR will consider the recommendation to provide CBR with the power to require advance notice of any decision to delay or abstain from disclosures.
- CBR conclusion: disagrees with the “not implemented” assessment; believes safeguards for full disclosure enabling informed investment decisions are implemented, and shortcomings do not justify downgrading from prior “partially implemented” FSAP assessment.

### Principle 17
- CBR does not agree with downgrade from “broadly implemented” to “partly implemented” for Principle 17.
- CBR asserts Russian legislation provides for major safeguards ensuring holders of securities in a company are treated in a fair and equitable manner.
- JSC Law provisions on takeovers cover actions of the buyer acting with its affiliated persons rather than shareholders acting in concert; affiliated persons include a wide spectrum including individuals, and affiliated persons’ lists are obligatory for disclosure, ensuring practical effectiveness.
- CBR is considering and working on corresponding amendments to the legislation in response to the recommendation.

### Principle 22
- On CRA oversight, CBR notes:
  - CBR issued Regulation No 521-P dated January 17, 2015 “On the Procedure of CBR Maintaining CRAs Register, Foreign CRAs’ Branches and Offices, on the Requirements for Procedure and Form of CRAs Notifications Submission” to apply the newly adopted CRA Law.
  - Business companies can apply to be registered as credit rating agencies under the Regulation.
  - On February 29, 2016, one business company applied to be registered under Regulation No 521-P as a credit rating agency.
- Relevance of work experience requirements:
  - Section 4 of Article 7 of Federal Law 222-FZ lays down requirements for relevance of work experience:
    - Experience as a senior manager at a CRA or its structural units or any analytical agency or research center, or a financial organisation or its structural unit operating in the financial market, or experience with CBR or a federal executive body acting as a regulator of the financial market in a position not lower than a structural unit head for at least one year in case of higher education degree in Economics, Law, Mathematics (technical).
    - At least two years in the event of a different higher education degree.

### Principle 29
- Regarding investment advisors, CBR notes a draft law amending the Securities Law on investment advisors’ activity was submitted to the State Duma.
- The draft law provisions would establish a financial consulting implementation framework, including requirements for investment advisors and self-regulatory organizations of investment advisors, interactions between investment advisor and clients, requirements on clients’ investment profiles, and rights and duties of a financial advisor.

### Principle 31
- Principle 31 was downgraded from “partly implemented” to “not implemented” due to findings of lack of regulation in several respects; CBR responds as follows.
- Conflicts of interest:
  - CBR Regulation No 3234 contains specific requirements on brokers to control risks inherent in direct (or indirect) client access to the exchange.
  - There is a mandatory system of pre-order validation for every client allowing a broker to set limits to prevent a client from placing orders exceeding those limits.
  - This addresses the statement that there are no provisions to prevent a client with direct access from placing orders that exceed specified limits.
- Internal controls:
  - Passage 1.1 of Article 10 of the Securities Law requires professional intermediaries to organize and exercise compliance and internal audit.
  - Professional intermediaries must appoint a compliance officer or form a separate compliance division.
  - Professional intermediaries are required to organize a risk management system commensurate with their operations that includes a risk monitoring system providing timely information to the Board.
  - Requirements aimed at regulation of compliance, internal audit, and organization of risk management systems of professional intermediaries are currently under development.
- Protection of clients’ rights:
  - Article 3 of the Securities Law imposes obligations on brokerage firms to act with due care and diligence in the interests of a client and to place the interests of the client above their own.

*Source: _cr16233 - Introduction*

---


_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2016/_cr16233.pdf_