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State Duma approves draft law in second reading on selling financial instruments and protecting non-qualified investors

18 May 2021

Prior to concluding an agreement, all financial institutions, as well as their agents will be obliged to provide easy-to-understand information to their customers about the key features and inherent risks of the financial products or instruments they purchase.

Information shall be provided to clients in paper or electronic form and conform to a set of requirements to be approved additionally.

This measure will help financial consumers make a more informed choice and assess risks and results of purchasing particular financial products and instruments. Furthermore, the introduction of sales rules will help establish a single, more transparent model of financial institutions’ conduct.

In addition, the Bank of Russia will be entitled to impose restrictions on conducting certain transactions with individuals and oblige financial institutions to buy back the products they sold if they commit a gross violation of the established sales rules.

Measures to protect non-qualified investors make a significant part of the draft law. Non-qualified investors’ tests for understanding inherent risks of financial products offered to them will start earlier — on 1 October 2021 instead of 1 April 2022. Until this moment, opportunities for conducting certain transactions with complex products are limited.

Until 1 April 2022, it is forbidden to sell to non-qualified investors securities having complex parameters for estimating their yields and over-the-counter derivatives, the use of which revealed the highest risks of abusing their right. An exception may be made for investors successfully passing the tests, provided that securities have characteristics making them easier-to-understand and less risky for non-qualified investors (in addition to those provided for by law, such characteristics may be established by a regulation of the Bank of Russia).

Amendments to the rules for selling financial instruments will become effective three months after the official publication of the law, and the majority of changes aimed at protecting non-qualified investors — on the date of the official publication of the law.

Preview photo: JRP Studio / Shutterstock / Fotodom