Business reputation and qualification requirements: innovations for banks and financial organisations as of 2018

28 January 2018 is when new requirements for the business reputation of buyers (holders) of large blocks of shares (stakes), executive bodies and officials of banks, insurance companies, NPFs, management companies and microfinance companies come into force. These innovations are introduced by Federal Law No. 281-FZ, dated 29 July 2017. The Bank of Russia will employ a cross-functional approach when assessing compliance with the requirements for business reputation of these entities and, whenever stipulated by law, of the candidates for executive positions in these companies and banks.

An in-depth analysis of key innovations of Federal Law No. 281-FZ is given in the presentations posted on the Bank of Russia website.

Now all the above-mentioned financial market participants will, in effect, all work under levelled-out requirements for the procedure of buying large (more than 10%) blocks of shares and installing controls over large shareholders (members), and for the procedure of disclosing information about shareholders (participants) and ownership structure. The procedure is being introduced to rectify violations of requirements for business reputation.

As set forth by law, a person shall be entitled to apply to the Bank of Russia regarding the availability of information about him-/herself in the database maintained according to Articles 75 and 76.7 of the Federal Law ‘On the Central Bank of the Russian Federation (Bank of Russia)’ and lodge with the Bank of Russia a petition against a decision that recognises his/her business reputation or qualification as unsatisfactory. After these issues are considered by the Bank of Russia, the person shall be entitled to take legal action in order to appeal against decisions on his/her business reputation or qualification.

The Bank of Russia has set a procedure for, and has been maintaining a database on, persons whose business reputation is recognised as incompliant with statutory requirements. As of 1 January 2018, the database contained 5,795 entries about persons who held posts in banks or non-bank financial institutions, who held large blocks of shares (stakes) of credit institutions (or who controlled such holders), whose business reputation did not comply with statutory requirements.

Though the law provides for the possibility of a ‘life-long’ ban on holding posts or shares (stakes), or on controlling shareholders (participants), this applies only to credit institutions solely for two reasons: criminal liability of a person by force of an effective court order for illegal actions during the bankruptcy of a credit institution, deliberate and/or fictitious bankruptcy of a credit institution; and also a repeated violation of requirements for business reputation.

This law seeks to enhance the responsibility and professionalism of the executive bodies of banks and financial institutions. Additionally, these innovations will help eradicate unfair competition in financial markets.