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Experts: Failures In Mega Regulator Creation May Do Harm To Economy

09.10.2012 20:28 / RIA Novosti

RIA Novosti round table guests believe, the currently discussed solutions on creating a financial market mega regulator are badly worked out and have no base. In case of being implemented, these solutions may do some harm to Russian economy, becoming a reason of some actors to be replaced from the financial sector and corruption blooming, they beware.

An issue of a financial mega regulator creation has been discussed for over a decade, and today this idea has a chance to be realized. In late August Senior Deputy Prime Minister Igor Shuvalov made interested departments and agencies work out and submit their proposals on regulation improvement in banks and at financial markets to the government.

One of the solutions is to create the Central Bank-based mega regulator; the Bank is currently regulating only work of credit organizations. Regulator for professional actors at the stock market is the FFMS. An opportunity of the FFMS merging into the Bank of Russia has already been supported by Minister of Finance Anton Siluanov and the FFMS Head Dmitry Pankin.

In early October President Vladimir Putin gave a task to discuss and solve this issue on creating a mega regulator. Once a political decision on creating this regulator is made, the FFMS functions will be delivered to the Bank of Russia by the end of 2013. Control over financial markets in this case will be executed by the Bank of Russia deputy official, the Ministry of Finance supposes.

The expert community can’t make a mutual evaluation of this perspective to create an integrated body to control banks and other financial institutions as it is proposed today.

As the Round Table participants say, integration of the Central Bank and the FFMS will mean something unbelievable. “The idea emerged, when the FFMS’s additional functions grew, but the resources remained to be the same, which contradicts the international rules for financial regulation,” – explained Yakov Mirkin, Chairman of Financial Markets Committee at the Russian Chamber of Commerce and Industry. Hence, the financial community members were talking about the necessity to increase a financial base of the FFMS, also to improve its work in executing functions of prudential regulation.

However, a new unexpected variant is being discussed today – financial regulators get integrated to the Central Bank only in minor countries with small markets. Moreover, consolidation doesn’t necessarily bring only positive results. “It is better to strengthen the FFMS than to create a super mega regulator that doesn’t have any international analogues. And we definitely shouldn’t deliver control over the real economy companies working at financial markets to the Central Bank, as it will happen in case of this merge,” Mirkin believes.

Both the Central Bank and FFMS manage to cover their fields, that’s why we do not need a regulator – Professor Vasiliy Solodkov, Director of the HSE Banking Institute, explained his point of view. The Central Bank should continue to be in charge of supervision that was very efficient for many banks during the crisis, he added.

Federal officers just want to withdraw our attention from a failure of the idea to create an international financial centre in Russia, Yuriy Danilov, the FFMS expert, believes. “Our survey shows that 23% of respondents evaluate its execution as a positive one, 62% of people treat it negatively, and 15% consider it a total fiasco,” he said.

Solutions to create a mega regulator suggested today are not worked out and don’t have a strong base, the event participants conclude. Such decisions get prepared for 18-24 months in developed countries, previously being widely discussed inside various structures. “The only thing we hear is to hurry up. So, do we really understand the necessity to make such macroeconomic decisions influencing the whole economy?” asks Mirkin.

As he assumes, it is very important not to make a mistake that will negatively influence the Russian economy. Consequences of such a mistake may be very bad. “The very nature of the Central Bank being a tough regulator for major banks creates obligations for those, who have to run and jump, - a financial market members connected with high risks,” Mirkin believes.

It will lead to a situation, when all brokers, dealers and investment funds will become extinct – all those, who provide economic development and modernization, being responsible for high risks,” the CCI Committee’s Chairman insists.

Tasks of the Central Bank are to support financial stability, reduce inflation, as the expert explained. “But if we want to see not only the oil-based growth, support financial infrastructure, it needs to be regulated differently,” he added. Once the mega regulator is created, it will be re-improved again within a couple of years; we’ll see division of the areas of responsibility, the expert considers.

Whether the mega regulator is created in a discussed manner, then brokers, who don’t have banking licenses, will move to other jurisdictions; regional brokers will also leave the stage, Danilov believes. Independent investors to the Russian stock market will also leave, and today their number is about one million people throughout Russia, the FFMS expert expects.

Creation of the mega regulator in a currently proposed form will lead to lower speeds of economic growth, decrease of competitiveness and corruption growth, concludes Solodkov.

He also said that today the idea of creating a mega regulator has emerged literally from nowhere. “It probably got unveiled because of the necessity to hire Alexei Kudrin, former Minister of Finance and Head of the Committee of Civil Initiatives,” Solodkov guesses.

The experts previously interviewed by the “Prime” agency named Kudrin one of the five front-runners to become a head of the mega regulating body that, if positively decided, will be the Central Bank.

Mr. Kudrin thinks that it is too early to talk about these candidates and says that he hasn’t been offered this position yet. As Kudrin said to RIA Novosti on Monday, the last time he discussed an opportunity to take a seat of the Head of the Central Bank was one year ago, right after his resignation. The current head of the Bank of Russia, Segei Ignatiev, who headed the Central Bank in March of 2002, will leave his position in June, 2013, when his third term ends.

Danilov believes, Kudrin could create an independent regulating and controlling body that could integrate a body controlling banks. It doesn’t mean merging with the Central Bank, though, but creation of a new strong institution to regulate financial markets or, at least, non-banking sector, the FFMS’s expert explained.

Financial markets megaregulatorProject Group №1Sergey IgnatyevAlexei KudrinDmitry PankinIgor Shuvalov