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New Draft of Non-Banking Financial Market SRO Act Focused on Standards

06.12.2013 18:00 / Interfax

The Central Bank of Russia has drafted and circulated for review with ministries a new draft of the Non-Banking Financial Market Self-Regulating Organizations Act.

The new draft of the document retains the key principle of mandatory market players’ participation in the SRO. If it stays, ‘loners’ will be barred from dealing in the financial market. The new version also preserves the 30% representation limit to set up an SRO in a particular line of business. The new draft deals more with SROs developing professional standards and their responsibilities.

Requirements for SROs and their executives will be set by the Central Bank.

Existing financial market professional associations, says the draft, are to join an SRO within 6 month, however, those functioning at the time of enactment will be put in the fast lane when applying for SRO status. Thus, fence-sitters are forced to make up their mind on joining professional unions.

“Compulsory participation, on the one hand, raises the bar for SRO responsibility in its financial market segment, while standards and other SRO rules, compulsory for all members, in turn, increase financial market participants’ responsibility to the SRO”, says the draft memorandum.

The draft still covers SRO in a number of financial market segments. It applies also to ‘professional securities market participants (brokers, dealers, trustees, depositaries, registrars); fund management companies and special depositaries in investment funds, share investment funds and non-state pension funds; share investment funds; non-state pension funds; insurers and actuaries; microfinance companies; credit unions, building societies, agricultural consumer credit co-operatives; credit reference agencies; rating agencies’. “Today’s self-regulation is fragmented”, states the memo.

The draft does not, however, stipulate that there can be only one SRO of each type. There may be a number of SROs with a minimum 30% of the entire market segment participants as members.

This establishes “conditions for preserving the status quo, when more than one SRO is active in some market segments, allowing competition between such SROs and offering SRO members the option of switching SROs at their discretion, which makes it possible to decrease regulatory arbitration”, says the memo.

At the same time, the draft contains a ‘bottleneck’ in applying some norms. For instance, several SROs in one segment may draft own standards, however, they must have the approval of all SRO execs. This can hardly be expected of competing SROs’ executives.


The All-Russia Insurers Union President Igor Jurgens says “There may be more than one SRO in each financial market. Creating an SRO monopoly in the market would seem wrong, I tend to agree with the Russian Federal Anti-Monopoly Service on this”. “A company must have the option to join another SRO, if it is not happy with the way things are. At the same time, the bill has a limit, the SRO has to have 30% of the market participants on its member list. An insurance company has no right to conduct business in the market unless it is an SRO member, therefore each insurer will have to join at least one SRO”, Jurgens told Interfax.

To work out a correct standpoint on major SRO anti-monopoly policy, the AIU “proposed to FAS that they reform the FAS Insurance Expert Committee, delegating some aspects to special working groups”, added Jurgens.

He remarked that “AIU could become an SRO according to one scenario, following the passing of the bill. However, some standards can and must be drafted now”.

“How AIU standards will correlate with SRO standards, is not yet clear”, said Jurgens.

He stated that the AIU is in liaison with major industry unions in the market, including compulsory insurance. “Since our Boards are somewhat identical, member companies see no outstanding issues that require attention. However, in the future we will have to reorganize: either we unite SROs as an umbrella, or, conversely, they become our divisions”, said AIU President.

“The proposed Financial Markets SRO Act is flexible enough, allowing different scenarios. But first, as I have said many times, the state must finalize the model of state regulation in our market, so we can sort out the self-regulation afterwards”, he concluded.

Luckily for market participants, “the bill does not ban one SRO from combining regulatory functions in several business segments to minimize market participants’ costs and in accordance with SRO practice in Russia”.


“Larger SROs would cut costs per each member. SRO status is awarded by the Bank of Russia in each line of business – broker SRO, dealer SRO, depositary SRO etc”, states the memorandum.

The cornerstone of SRO functions is development of professional standards and internal procedures.

The bill memorandum states that “standards development will facilitate necessary unification of regulation, decrease market participants’ expenses and consequently, the cost of their services for consumers. Unification also helps simplify and level the terms on which financial products and services are offered to consumers”.

“These standards form a code of conduct for the insurance market, and in order to compete, the insurance company will be welcome to make its product more lucrative for the consumer than required by the minimum standard. The consumer, in turn, will be aware of the required minimum that the insurance company must offer him”, says the AIU President.

Apart from drafting standards, the Central Bank is ready to delegate financial market SROs the “powers to review documents submitted by financial market participants in application for a license (permission). This measure raises SRO responsibility for the stability of the financial market segment and granting access to bona fide participants only”, reads the bill memo.

Authors of the draft also reserve for the Bank of Russia the option to delegate a number of other functions to SROs at their request, including compliance audit functions.

SROs will also have the right to collect mandatory reporting from licensed participants for initial processing and forwarding to the Bank of Russia; to run qualification exams for company executives and staff.

Part of SRO requirements is formed by qualification and business reputation standards of SRO executives.

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