Enhancing protection of retail investors: Bank of Russia discusses draft law

The Expert Board for Financial Consumer and Minority Shareholder Protection under the Bank of Russia believes that protection of retail investors in the financial market should be enhanced. The Expert Board discussed a draft law on the regulation of retail investor categories at a meeting held in the Bank of Russia on 22 November 2019.

The participants discussed the requirements for testing non-qualified investors’ understanding of the specifics of financial instruments. In the opinion of Expert Board members, the Bank of Russia should draw up test assignments and check that market participants comply with testing requirements.

Another important topic for discussion was the criteria for recognising an individual as a qualified investor – the participants were of mixed opinion whether financial assets in the amount of at least 10 million rubles would be sufficient for this purpose. Evgeniya Lazareva, head of the All-Russian People’s Front’s project For Borrowers’ Rights, reminded the participants about the cases where pensioners sell their flats to invest in securities and lose both their home and savings.

The meeting participants also discussed the list of financial instruments open to non-qualified investors without testing (foreign securities admitted to on-exchange trading, exchange unit investment funds, closed-end unit investment funds, etc.). Proposals were made to conduct focus groups with unskilled securities investors in order to effectively estimate to what extent a novice investor understands the specifics of certain financial instruments.

Nikolay Gonchar, deputy of the State Duma, reminded the Expert Board members that the number of retail investors had dramatically increased recently and looks set to rise further, and, therefore, the law that will protect them should be adopted as soon as possible.

‘Novice investors buy financial instruments to improve their welfare, and the financial sector should help them to do so rather than simply earning commission for fulfilling customer orders,’ concluded Nikolay Gonchar. ‘It is essential that consumers are not disappointed with these new instruments and do not tell other potential investors that they have been cheated.’