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Financial SROs Want Role in Oversight

07.04.2014 00:00 / Interfax

Financial self-regulating organizations (SROs) protest Central Bank plans to side-step them in member audits. A new regulation draft contradicts the Financial Market SRO Act proposed by the CB, and could pose serious threats to market participants.

Heads of the three non-bank SROs made a joint appeal to the Head of the Bank of Russia Elvira Nabiullina, calling that certain regulatory steps unwarranted. The new regulation draft, outlining CB audit procedures for licensed participants and SROs, has caused backlash.

The regulator proposes a de-facto removal of SROs from audits. “This change is unfounded and neglects the significance of SROs”, states the appeal. Licensed participants are outraged by the regulator posting an important directive with only three days allowed for experts to review. The appeal is signed by Head of National Stock Market Participants Association (NAUFOR) Alexey Timofeev, Head of National Association of Pension Funds (NAPF) Konstantin Ugryumov and Head of Professional Association of Registrars, Transfer Agents and Depositaries (PARTAD) Pavel Dubonos.

Today, the CB invites SROs to take part in licensed participants’ audits. The rule was instated a year ago by the Head of the now-liquidated FFMS Dmitry Pankin. A similar rule was part of the Financial Market SROs Act drafted by the CB in November 2013, due for introduction to the State Duma. Market participants say that SRO involvement in the audits keeps complaints to a minimum. A registrar estimates that audits result in licensed participants annually fined RUB 85mn, and most companies opt for paying a fine instead of taking the matter to court. Without SROs fines could skyrocket, say market participants. According to the drafted directive, the CB will inform SROs of any problems found after the audit has been completed.

Market participants say the directive could pose a serious problem. “I do not overestimate the role of SROs in audits, however, our representatives were actually a restraining factor for audit committees”, said Konstantin Ugryumov. “Besides, the directive contradicts the previously announced CB concept, plus posting the document for a mere three days is strange”. “SRO reps help avoid conflicts during audit, leading to fewer results taken to court”, says Alexey Timofeev.

The Bank of Russia said Friday that the appeal has been received and passed on to the respective departments. “I doubt that the directive is premeditated evil”, claims a source close to the CB.”I think the SRO Act was drafted by one department, while the directive was drafted by another, hence the mix-up”. On the other hand, says the source, CB First Deputy Chairman Sergey Shvetsov “has been very lenient towards licensed participants in the past – and times may have changed”.

Ksenia Leonova

Financial markets megaregulatorProject Group №1