Proportional regulation and risk-based supervision of non-bank financial institutions: regulator reveals its plans

The Bank of Russia has prepared and presented for discussion a concept paper that outlines prospective changes (step-by-step implementation) in proportional regulation and risk-based supervision of non-bank financial institutions (NFIs) and describes current approaches to the matter.

At the moment, proportional regulation is applied to most NFIs to a greater or lesser extent. At the core of proportional regulation is the risk-based approach implying that the volume of regulatory requirements depends on how much risk a NFI takes. Risk level is shaped by two factors: type of operations conducted by the institution (qualitative factor) and volume of these operations (quantitative factor). The said factors form the risk profile of a NFI.

In the field of supervision, risk-based approach and proportionality mean that intensity and frequency of supervisory measures correspond to the category and risk profile of the NFI. It is assumed that lower reporting requirements for small NFIs will be the key change. Also, new reporting templates will take into account NFI categories in order to determine the contents and frequency of the reports.

These measures help lower the regulatory burden of NFIs and encourage early risk detection in supervised institutions. Proportional regulation and risk-based supervision go along with current trends in financial market supervision and regulation. Their primary goal is to protect financial consumers’ legal rights and interests, to promote development of the financial market and ensure stability of the financial system.

‘Risk-based and proportional approach to supervision and regulation of NFIs will encourage competitiveness of the Russian financial market and strengthen consumer confidence. It is in tune with current economic environment and best international practices,’ Vladimir Chistyukhin, Deputy Governor of the Bank of Russia, said. ‘However, the diversity of activities and services offered in the financial market does not allow for a one-size-fits-all approach to proportional regulation.’

Please send your feedback, proposals or comments to the concept paper to bjs2@cbr.ru until 3 August 2018.