Our progress / MIFC News

13.10.2020 17:35 / The Bank of Russia

Bank of Russia announces public discussions on digital ruble In response to the evolving needs of households and businesses, the Bank of Russia is assessing the possibilities and prospects of introducing a digital ruble. This work will be conducted in close cooperation with the public. In order to encourage an extensive discussion of this issue, the Bank of Russia has published a consultation paper (In Russian; the English version will be released later).

17.08.2020 18:33 / The Bank of Russia

Financial institutions should migrate from LIBOR to alternative benchmarks In its Information Letter, the Bank of Russia recommends that financial market participants migrate from LIBOR (London Interbank Offered Rate) to other risk-free rates.

23.06.2020 14:15 / The Bank of Russia

Svetlana Zolotareva to head Financial Market Strategy at CBR Svetlana Zolotareva has been appointed Director of the Financial Market Strategy Department. This appointment will be effective from 29 June.

10.03.2020 16:16 / The Bank of Russia

Scope of specialised depositories’ activity may be expanded: Bank of Russia’s consultation paper The Bank of Russia proposes that market participants consider the possibility of expanding the scope of specialised depositories’ activity and modifying this institute. These initiatives are aimed at reducing market participants’ and investors’ costs, increasing competition, and improving the quality of services rendered by specialised depositories.

10.03.2020 15:45 / The Bank of Russia

Number of investors in equity market doubles in 2019 In 2019, the number of brokerage and trust management (TM) clients doubled, to total 4.3 million and 341 thousand persons, respectively. The significant inflow of investors was associated with a rise in the equity market and a decrease in deposit interest rates, according to the Review of Key Indicators of Professional Securities Market Participants. Banks’ policy was also an important contributor to the expansion of the client base: banks attracted nearly one-half of the 2 million new retail clients receiving brokerage services by offering them conventional and structured bonds as an alternative to deposits.

16.01.2020 16:52 / The Bank of Russia

Bank of Russia Commission receives 555 applications for business reputation recovery The Commission reviewing complaints about the Bank of Russia’s decisions on non-compliance with qualification or business reputation requirements received 555 applications over the period of its operation, according to the data as of 1 January 2020. The Complaint Review Commission started its work on 28 January 2018. It reviews complaints from officials and major shareholders (stakeholders) of credit and non-bank financial institutions about recognising them incompliant with the applicable requirements.

News from 

Interview with Alexander Voloshin

01.07.2013 20:34 / MIFC

Russian Prime Minister Dmitry Medvedev has signed off the Moscow International Financial Center Roadmap. Russia must reach ambitious goals set out in the document to make its mark on the map of the world’s leading financial hubs by the start of the next decade. Head of Moscow International Financial Center Taskforce Alexander Voloshin considers this complex objective achievable.

— The Government has passed the Roadmap, a cornerstone for your workgroup and the entire MIFC effort. What immediate effect will it have? What are the KPIs and short-term goals?

— The previous MIFC action plan was adopted by the Prime Minister back in 2009 – before our workgroup came into being. We had mostly followed through on that plan, and the time had come to formulate a new one. One thing I want to make clear is that the newly approved Roadmap was shaped at the grassroots level, by market participants. We thought this approach was right: financial regulation and infrastructure goals are best set by the market, not the bureaucrats. Despite the dragged-out ministry approval process that ensued, de facto implementation started last autumn. Today, many tasks are already completed.

The roadmap has set a number of technical indicators that are designed to be MIFC progress KPIs. For instance, investment ratings by leading global agencies – our goal is to make it to the A-list of investor attractive countries by 2018. Besides, we must rise from today’s nearly outsider ranks to the Top 20 in ease of doing business and investor rights protection indices. In particular, we aim to move up from #98 in “Getting Credit” category of Doing Business by the World Bank to the top 20 by 2018, and from #65 to #15 in Global Financial Centers Index.

We also use internal KPIs, not officially laid out in the Roadmap: number and size of major IPOs in our market, gross market capitalization, top trading floor volumes. I think that at this stage 2-3 large IPOs per year is quite an achievement for Moscow as a financial center. If we follow with 4-5 — that would be a success. IPO is an aggregated indicator in itself. Successful IPOs need a working infrastructure and a liquid market. If these are not in place, it makes more sense to float shares elsewhere.

We are consistently advancing toward this goal. Take the Moscow Exchange IPO as an example. What initially seemed a mere technicality arising from an outstanding commitment to RTS shareholders, became a successful landmark. It attracted quality foreign investors, including conservative investment funds. Since the stock exchange is the core element of any financial center, this interest in Moscow Exchange shares is a certain indication that investors also trust the idea of MIFC development.

— What are the priorities of Moscow International Financial Center development?

— We have a number of priority work streams, primarily financial infrastructure and regulation. We have made quite some progress there in the past two years. Important Acts have been passed on insider trading, clearing procedures, simplified securities issue. We have drafted corporate management amendments to the Tax and Civil Codes that are crucial to the financial market. We drafted and passed legislation to establish a Central Depositary, opening our market to new categories of foreign investors. Foreign clearing houses Euroclear and Clearstream opened accounts at the Central Depositary. Moscow Exchange was successfully set up and floated. The stock exchange is actively streamlining procedures, has launched Т+ settlement, rolled out new financial instruments, and is getting ready for listing reform. Finally, a large-scale regulatory reform is in the pipeline, and we hope it will improve quality of regulation and create growth opportunities for entire sectors of the financial market.

However, there are two other major sets of objectives that earn more points in financial center ratings and are essentially more complex: first, the quality of city infrastructure, the urban environment, and second, investment climate. Obviously, getting things right in a huge sprawling city like Moscow is a tougher challenge than quality financial regulation. It will take more time and quite a lot of money.

— And yet, urban environment is obviously not something that your workgroup is directly accountable for. How can you influence the city hall in MIFC-related issues? How do you liaise with the Mayor’s office?

— We have a good working relationship with the Mayor’s team. Sergey Sobianin is an active MIFC supporter and his team is integrated in our effort. We liaise effectively on common objectives.

Strangely enough, the financial center has no specific demands to the city. If the city is generally livable, it is good enough for a financial center. Our brief wish list for the city is mostly about openness and being easy to understand by foreigners. Financial or simply business centers attract a lot of foreign nationals who work there part-time or permanently, and the city must be comfortable to work and live in, to send kids to school, to feel safe in, see English language signs on the street and in the metro. If we do not open up, if we reject the cosmopolitan bustle, we will end up without financial or business centers.

— Skolkovo chose the path of setting up a reservation for investors, to recreate the climate they are used to. Is this what you are after?

— Skolkovo is an easy target… “Reservation” is not the right word here, but the two projects are clearly different in approach. Our financial center is not exterritorial and it’s not an internal offshore. Finance is a liquid substance. Setting up an internal offshore will make all financial companies in the market reregister to pay less tax, with zero boost for the financial industry. Inasmuch as we can create favorable tax treatment for the financial sector, our aim is to do it on a nationwide scale.

— And yet Sberbank plans a large-scale real estate development project in Rublevo-Uspenskoye, directly linked to Moscow International Financial Center.

— We welcome this project, but it has nothing to do with the MIFC Taskforce. Our workgroup is about financial development, not estate development.

Let me explain this. Moscow is a big city and dramatic improvement here takes a lot of hard, serious, arduous effort. It won’t happen as quickly as we wish. If someone like Sberbank happens to also create local comfort for business, building quarters or districts where the financial community and business in general can get comfortable accommodation, this solution is ahead of the game. Is it good for the city? Of course it is.

Still, investment banks don’t come to us asking for quarters, they set up offices wherever it works for them. By the way, the trickiest part about projects like that is making them attractive to many companies. Finance will move to an area that you make convenient, cheap and classy.

Actually, London has at least two financial and other business hubs – the historically evolved City and the more recent Canary Wharf, purpose-built and developed with serious government support. Many investment companies and other financial businesses in London are located outside these two areas.

— Does that mean that the Sberbank project will not have MIFC-affiliated status?

— The best status for a place like that is convenience and affordable price. Sticking an MIFC plaque on a building won’t help the financial market grow. But then again, we need such projects are this one is worthy of support. And if it turns out really great, go ahead and hang that plaque on it.

— You have mentioned financial climate as a major part of MIFC effort.

— This part of the international financial center effort is the most complex by nature. Some business climate objectives are really reachable in the foreseeable future. However, some things take a lot of time. Such as dramatic improvement of the courts and the police. Most of the problems there are rooted in the mentality. Respect for private property, for instance. It must be imbibed with mother’s milk by statesmen, lawyers, investigators, prosecutors, judges, the police and everybody else.

— Do you get the feeling that investment climate has been getting worse instead of better recently? Lawless law enforcement, the state’s growing rejection of the West, anti-corruption campaign that affects the business community – doesn’t all this work against you?

— There are two sides to this problem: one part is institutional issues that directly affect investment climate, the other is investor mood. Institutional issues call for complex solutions that take time to implement and take effect. For instance, the radical reform of the court system that we have mentioned – this is a process that takes decades and will be finalized only when generations change.

Investor mood also matters and should be taken seriously. However, this mood tends to be shaped by short-term factors. As far as I recall, the best investor mood in Russia was in 1997, at a time when institutional problems that affected investment climate – macroeconomics, security, property rights protection – were colossal. The state failed to collect taxes, the budget was coming apart at the seams, holes in the budget were mended by extortionate loans. Factories were bogged down in payment defaults and nettings. Salaries and pensions were delayed by months on end. Still, investors were amazingly euphoric, lining up to buy Russian assets.

High yield is magic that erases investors’ memories of lost money. As you know, investors did not mourn the Yukos bankruptcy for too long and jumped at the first chance to sweep up Rosneft.

— And yet the Central Bank has been constantly reporting a rise in capital drain. The trend is completely at odds with your objective of building an investor attractive financial system.

— I would call the financial system something other than a driver of investment. MIFC is a place where global financial demand meets global financial supply. If this system is effective, it naturally helps attract investment as well. But it is not a money pump. The financial industry must become a standalone sector and a huge GDP contributor, not just a service for other industries ‘that matter’.

Back to your question, capital drain is apparently caused by many things, such as investor mood. Regrettably, these reasons include problems that are much harder to handle – business climate and growth rate.

Growth is probably the main attraction for investors in emerging markets. As for investment climate, what matters most for investors is stability and predictability. The rules must be stable, and if they change, they should reflect business interests and the effect they will have on business. This goes for practically all industries and markets. A key investment climate factor is the slow pace of legislation. Any act that gets passed in a rush, however good the intentions may be, is a shock for investors. The investor thinks: if it takes three days to pass a good law, next time it will take three days to pass a bad law. We have never paid attention to these things. But it’s okay, we will learn and get used to it.

— The Magnitsky Act, the Anti-Magnitsky Act and all that scandal, does it affect the investment climate?

— Politics definitely affects investor mood. This does not seem to have anything in common with terms of investment, but it’s something that the investor community is concerned with.

I will say it again, because it matters: investors are primarily interested in a growing economy. They are willing to cut a lot of slack for high growth. Of course, the main reason we need economic growth is not to attract foreign investors but to use it for ourselves, to boost the quality of life.

To grow, our economy needs a better business climate. A lot is being said about stimulation of economic growth by cheaper financial resources. Rates are an important policy, but this instrument is useless without an improved investment climate.

— It is clear who you side with in the ‘weaker rouble for economic growth’ debate.

— I do not believe in achieving high economic growth by doing something like that. A real way of doing that is by consistently improving the business climate. A two-digit growth rate is achievable if you get really focused on this task. Entire industries have fantastic potential. All service economy, the financial sector, commercial healthcare and education, engineering, software, web services etc. However, these new industries are extremely investment climate-sensitive. Oil and gas can only be mined where the deposits are. New industries are not anchored to a territory, these businesses can easily relocate somewhere more comfortable. Therefore, the cornerstone of their development is climate.

— The MIFC effort was launched by the President and the Prime Minister. How up to date is Putin with MIFC, how often do you discuss it? Does he lend any executive support to the project?

— Correct, the project was initiated by the President and the Prime Minister. President Putin approved the concept and the initial MIFC plan in Summer 2009. In mid-2010, President Medvedev established a workgroup that reports to the presidential Financial Markets Council. Today, both have assumed different positions, but they still support the project.

From the very beginning, our workgroup has had constant support from the President’s Executive Office, primarily the Expert Department. We are in touch on a regular basis.

As for the President’s involvement, that comes across in his speeches on Moscow Exchange-based privatization, the Central Depositary and other important issues.

On the practical side of things, to carry out the bulk of our routine work we rely on day-to-day liaisons with the Government, the Central Bank, Ministry of Finance, Ministry for Economic Development, FFMS.

I would like to point out, however, that our expert groups mainly represent the business: banks, finance, audit, consulting etc. Different level officials also take part in our work, enabling all interested parties to reach a common standpoint at the initial stages of debate.

— How will the process be structured now that the Roadmap has been signed off?

— The cornerstone of our effort is Project Groups, each one assigned a specific issue. We are currently thinking of slightly restructuring our process to accommodate new goals and priorities. For instance, today’s major focus will be long-term investment, and we plan to form a special workgroup dedicated to pension funds, investment funds, life insurance. We will regroup, but we will not change dramatically.

— Who will supervise the Roadmap performance and who will administer punishment for underachievement?

— The Roadmap was approved by the Prime Minister and the list of ministries in charge is stated therein. They carry the same responsibility as when assigned any other missions by the Government and the Prime Minister. This is the formal part. But since our Group integrates officials, experts, and market participants, that brings out another responsibility – to the market. This is extremely important. Besides, the main KPI – our target rank in Doing Business – is stated in the Presidential Decree.

— To promote the financial center, you intended to create a marketing arm, just like in other IFCs, but it never happened. The Roadmap lists this objective – does it mean the idea is back?

— Exactly, these plans are a valid part of the agenda. The idea of this marketing structure has been debated for a long time, since it is present in most financial centers, and the top ones as well. In London, this part is done by TheCityUK, who we liaise with and understand how it operates. At the same time, we would much rather achieve something first, so we had a hunch that the PR bit would have to wait. It has become obvious now that the project needs activation. We will launch it within a year, but the structure itself will be independent from the MIFC Taskforce, I think.

— Who do you see as the clients of Moscow International Financial Center? Who are your priority targets? Wouldn’t it make sense to focus on making it the financial center of the former USSR or the Eurasian Economic Community?

— Frankly, we don’t think in terms of clients. Almost all major global investment banks are active in Russia. The point is how active. Their presence can be limited to collecting data, sending research to Western HQs, or it can be the full gamut of financial operations. Our goal is to boost the financial industry scope in every way to enable companies float in Russia and engage local investment resources. Do we see our close neighbors as ‘clients’? Of course, we do. Moscow has been the de facto financial center for the former USSR. Integration in this environment will help Moscow develop as a financial center. The opposite is also true – development of Moscow as a financial center will definitely drive integration.

— One of the measureable landmarks is establishment of the CB-based megaregulator, the Central Depositary and the integrated stock exchange. Will the change in Central Bank top management affect your relationship with the regulator?

— We have had a fruitful collaboration with Elvira Nabiullina when she was Minister for Economic Development and when she became Presidential Aide. I am certain that nothing will change in this regard. Just one remark: this time it is not a new CB Head appointment. The Bank of Russia is given new functions. With this in mind, as FFMS merges with the CB, our liaison with the megaregulator will grow exponentially.

— Let’s talk about MICEX. On the one hand, a strong infrastructure organization has emerged. On the other hand, some market participants have criticized the integration (the RTS buyout was expensive for MICEX), along with fears of market monopolization and, as a result, more expensive access to stock exchange infrastructure. How would you reply to these criticisms?

— Stock exchange integration was the subject of in-depth debate. There were arguments in favor of one strong exchange, and arguments in favor of competition. Foreign practice tells us that most financial centers, with very few exceptions, have one dominant exchange. Finally, the shareholders of both trading floors voted for integration. It is not clear whether MICEX overpaid for RTS. Perhaps the price included a control premium. It is not my place to pass judgment on how fair the price was. This was the shareholders’ business. Politically, we merely backed their decision to integrate.

Is the monopoly good or bad? Let me underscore that the monopoly in this case has a stand-out feature: it belongs to market participants. They have plenty of influence over the exchange. Historically, RTS has been more market-friendly in terms of service fees, MICEX was more of a ‘business’ place. I think the integration resulted in the less commercial, more pro-market nature of Moscow Exchange.

It is important to bear in mind that hi-tech is the cornerstone of a modern exchange. Programmer is the most common and in-demand job there. The integrated exchange can afford to invest more in technology and be internationally competitive, driving the financial market to Russia. This is exactly what market participants are interested in.

— How would attracting a strategic investor to the Moscow Exchange, such as a major foreign exchange, help MIFC development? The world has recently seen active stock exchange integration on an international level.

— I think that it is in our best interests to keep the exchange independent, not part of a foreign stock exchange holding. I am positive about this. But this does not mean that we can not have a strategic partnership with a foreign player, and the partnership can be multi-level – in technology, clearing, instruments, possibly mutual stock ownership.

— So you will not speed the arrival of this investor?

— The stock exchange must benefit from this. If it enters into a partnership and sees a benefit, while retaining independence, and if Moscow Exchange shareholders back this decision, the deal could get government support.

— The President made a few important statements at the recent St Petersburg Forum, especially the unification of the Supreme Court and the Supreme Arbitration Court. You mentioned the quality of the court system as a key investment climate factor. Will the decision to unify supreme courts have a positive or a negative effect on the investment climate?

— I think the unification of the courts in itself will not answer this question. Generally speaking, whether institutions are unified or divided, created or liquidated, changes nothing for the better, unless their core is dramatically reformed.

I think the President is more concerned with substance over form in this case. Apparently the idea is to use the unification as a pretext for radical court reform, which would naturally benefit the business climate.

— How did the 2011-2012 political turmoil affect investors’ feelings towards MIFC?

— Not sure about the turbulence, but politics affect investors mood in any country. A heated situation does them no good. But you must remember that investors care about stability and predictability more than with politics per se. A mass protest in itself hardly concerns investors. There are enough protests in France and in Germany, even more than here.

— Do you sense their nervousness?

— Frankly, I sense more nervousness from investors due to Russia’s under-performance in economic growth. To them, this is more troubling than political scandals.

Alexander Voloshin