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Duma Passes Financial Market SRO Bill in the First Reading

20.01.2015 12:00 / TASS

Today the State Duma passed in the first reading the Financial Markets Self-Regulatory Organizations Bill.

The bill was drafted by the Ministry of Finance and the Bank of Russia. It aims to establish self-regulating organizations in 16 financial industry segments. SRO membership will be mandatory for financial institutions.

Each segment will have two SROs with a minimum 34% participants share, however a company may participate only in one SRO in its segment. At the same time, SROs may serve financial companies from various segments, if certain criteria are met.

The bill is geared towards developing SROs in the financial market outside of the banking sector, said Financial Market Committee Chair Natalya Burykina, presenting the bill at a plenary session. “Self-regulation covers all sectors apart from banking, this has been purposefully built in the draft”, she said.

The draft establishes SROs for 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; inrurers and insurance brokers, microfinance companies; credit unions, building societies, building societies, agricultural consumer credit co-operatives, pawn shops.

SROs will be controlled by the Bank of Russia, with the right to penalize, demand top management reappointments, award and revoke SRO status. The draft act also envisions the Bank of Russia delegating to SROs such functions as legal compliance oversight in specific markets, qualification exams for executives and officers, collecting reporting, approving qualification exam programs, maintaining a registrar of qualified persons. 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.

Burykina stated that the Financial Market Committee had supported the draft on condition that significant amendments be introduced. Particularly, stipulations regulating the number of participants and SROs, “call for further consideration and adjustment, given the business specifics and the possibility of combining different types of business”, she said.

Procedures regulating drafting, approval and enforcement of base standards as well as formation of executive bodies, are also to be stipulated in more detail. “Functions will not be combined, one person has no right to hold multiple posts in several SROs”, said Burykina. Partial delegation of CB control and oversight functions to an SRO “must be stipulated in the Act, and not depend on the Bank of Russia’s decision”, she added.

The drafts states that a not-for-profit organization should submit its budget to the Bank of Russia when applying for SRO status. “This is nonsense, the Bank of Russia approving budgets. We expect things like this to be dropped from the draft by the second reading”, said the deputy.

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