New departments will “clean up” the financial market and supervise MFOs

The Bank of Russia is launching two new divisions: the Department for Countering Malpractice and the Microfinance Market Department.

All providers of licensed financial services operating without respective permits will fall under the scrutiny of the Department for Countering Malpractice. The new division will identify and put an end to the activities of illegal creditors, fraudulent insurers and professional participants including those providing services from abroad, and other players of the shadow financial market.

The Bank of Russia views disincentive measures against malpractice in the financial market among its key priorities. The exit from the market of illegal companies that violate financial consumers’ rights and disrupt competitive environment for fair market players will make the market more efficient in general and strengthen confidence in it.

Up to now, with the sole exception of the Main Office for Countering Malpractice in the Open Market engaged in the identification and termination of activities of financial pyramids, the regulator's divisions examined the activities of other illegal entities on a case-by-case basis. Now, this work will be addressed more consistently.

The department will also look for the websites of companies providing illegal financial services and will have information about them transferred to law enforcement agencies.

The department is primarily tasked with improving the efficiency of the investigation of cases of insider trading and manipulation with a focus on preventing malpractice.

There will also be a new area of activity. It will see to the fair pricing of financial instruments and foreign currency at organised trading venues. Moreover, it is the first time that the regulator is set to examine high-frequency trading and analyse the trading behaviour demonstrated by all organised trading participants. In the future, proposals are expected to be formulated on the key principles regulating algorithmic and high-frequency trading, and on mitigating artificial volatility associated with the use of these instruments. Special attention will be given to the elaboration of methodology and recommendations for the professional community which will help prevent violations linked both to insider trading and market manipulation, and to compliance issues in general.

The newly-established Microfinance Market Department has been assigned controlling, supervising and regulatory functions in the microfinance market.

The department will directly supervise the activities of microfinance companies (MFCs), consumer credit cooperatives (CCCs), and agricultural consumer credit cooperative (ACCCs) with over 3000 shareholders, and of second-level CCCs (that have only CCCs among their members). Steps will be taken to improve and strengthen supervision over the compliance with control functions by self-regulatory organisations (SROs) in the microfinance market, which, in turn, control the compliance with the legislative requirements by microcredit companies (MCCs) as well as CCCs and ACCCs with fewer than  3000 shareholders.

In its work, the new department will employ curatorship and will continue to compile, maintain and up-date the files of supervised entities.

The key objectives of the department include assessing the financial situation of supervised entities and forecasting their development outlook; analysing corporate risks which exert material influence on the market; aggregating data on owners, affiliated entities and the corporate structure of organisations; consolidating and processing information contained in statements and auditor opinions as well as information from publicly accessible sources (mass media, Internet).