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Bank of Russia sets out internal control requirements in line with insider trading law

22 October 2019

Bank of Russia ordinance has set out, for the first time, requirements for corporate internal controls in compliance with insider trading law. The document comes as a regulatory innovation in connection with the passing of amendments to insider trading law. The ordinance, registered by the RF Ministry of Justice, has been posted to the regulator’s website.

Formalised internal control rules are mandatory for legal entities that are subjects of insider trading law regardless of whether they are supervised by the Bank of Russia or not. Rule-setting helps build an effective system to counter insider trading activities and market manipulation and prevent incompliance of companies and their staff with rules and bans under insider trading law.

The ordinance stipulates a minimum set of provisions to be reflected in the rules. Requirements for them vary subject to a type of activity. Under the ordinance, the rules should specify the rights, responsibilities and functions of a business unit / executive in charge of ensuring compliance with insider trading law and respective regulations.

The rules must further include an action item list whereby the independence of a compliance subdivision / officer is ensured along with the continuity of their operations, and the procedure for monitoring of how a legal entity exercises its rights and responsibilities under relevant regulations.

At the same time, a company may at its own discretion supplement these rules with other provisions to ensure the proper functioning of the counter-insider trading/market manipulation framework.

The provisions make it possible to outsource, within the group, separate internal control functions under insider trading law.

‘While drafting their internal control rules, legal entities should avoid a formalistic approach but be guided by the specifics of their operations. They should also be mindful that their incompliance with insider trading law is considered gross misconduct in the financial market that impedes its development — and for which they may be punished. Efforts to counter illegal insider trading and market manipulation on the part of market participants are key tools to ensure fair market prices and a level playing field for investors in the financial market’, said Valeriy Lyakh, Director of the Department for Countering Misconduct.

Market players will have until 20 April 2020 to draft high-quality internal controls in line with the ordinance — the date when it is scheduled to become effective.

Preview photo: Tsyklon / Shutterstock / Fotodom