This week the Central Bank sent to Minfin the draft of Financial Market Self-Regulatory Organizations Act. In the past two years several attempts have been made to draft the SRO bill for the financial and banking markets. One of the drafts was prepared by the Central Bank, another – by market participants (MIFC Taskforce), but neither was introduced to the State Duma. The current final draft has been authored by the CB and the MIFC Taskforce. “The CB and market participants have been debating the issue for a long time, trying to wrestle more functions from each other. This version is a compromise as well. It is most likely to be introduced to the State Duma to be passed in the spring session”, says a source close to the CB.

The key difference in the new CB draft is that SROs are allowed to set their own rules. Last draft made CB responsible for setting SRO standards. The new version stipulates that SROs draft standards themselves and optionally submit them for approval to the CB. “SROs must be free to devise practice standards for members, however the CB should have the powers of approval, passing own directives if SROs fail to perform their duties”, says Head of National Stock Market Participants Association Alexey Timofeev. According to the previous draft, SROs were to pre-approve the appointed chief executive, his deputies and the financial controller. In the new draft, this only applies to CEO candidates. The new version shows a more relaxed approach to SRO budget control. The previous version was hardline in this regard, earning a ‘paperclip approval act’ tag: the SROs’ entire budget was to be greenlighted by the CB. Aide to National Pension Funds Association President Oleg Kolobaev says the amended SRO standards approach is the cornerstone of the new draft. Kolobaev says it is better to set industry-specific requirements for each SRO rather than stick with general rules (Article 5 of the new draft).

However, the regulator is not ready to offer SROs unlimited powers. One of the SRO-penned recent drafts attempted to authorize SRO to perform audit and penalize market participants. The CB version only allows SROs to report violations, while the regulator administers punishment.

“In our last week’s debates with the CB, we managed to reconcile the key differences. Personally, I am inclined to support this bill”, says Alexey Timofeev. The bill has also secured backing from NAPF.

Ksenia Leonova

Financial markets megaregulator, Project Group №1