Partial cancellation of easing and new measures to support financial market infrastructures in 2023

Since the beginning of 2022, the Bank of Russia has granted a significant package of temporary regulatory and supervisory easing to exchanges, clearing houses, central counterparties, depositories, registrars, specialised depositories, information system operators where digital financial assets are issued, digital financial asset exchange operators, investment platform operators, financial platform operators, and credit rating agencies (hereinafter collectively, FMIs) aiming to minimise the burden on these organisations in the unstable economic and geopolitical situation.

The analysis of the practice of using the granted easing measures shows that the Bank of Russia’s measures have generally smoothed the negative effect of the restrictions imposed by unfriendly countries and helped these organisations adjust to the new environment.

In this regard, the Bank of Russia plans to extend only a part of these easing measures depending on whether the factors that required their introduction still remain and whether the need in their extension has been confirmed by market participants. Additionally, the Bank of Russia plans to grant easing to simplify the procedure for recognising possible losses by market participants.

The measures are planned to be implemented by the end of 2022—the beginning of 2023. The Bank of Russia Board of Directors will make relevant decisions within its special powers.¹ The Bank of Russia will also issue information letters and introduce amendments to regulations. Details will be provided to market participants after the approval of the relevant decisions.

Easing not to be extended after 2022

In relation to all FMIs:

• The option to fix exchange rates and the value, including fair value, of securities and assets.
• The decision on non-application of enforcement measures for a failure to ensure compliance with the information security and operational reliability requirements.
• Permission not to disclose financial statements, with certain exceptions.

In relation to exchanges, clearing houses, and central counterparties:

• The decision on non-application of enforcement measures against central counterparties for a failure to comply with certain requirements for submitting their financial stability recovery plan.
• The decision on non-application of enforcement measures against exchanges for a failure to comply with the equity capital adequacy ratio.
• The decision on non-application of enforcement measures against exchanges for a failure to comply with the exchange rules and against central counterparties and clearing houses for a failure to comply with the clearing rules.

• The decision on non-application of enforcement measures against exchanges licensed to organise trading on or after 1 December 2021² if they:
  • fail to submit information on trading to the Bank of Russia; or
  • submit other exchange data (on applications, agreements, trading results, etc.) through their online account.

In relation to depositories, registrars, and specialised depositories:

• Depositories’ and registrars’ right not to disclose the calculation of their equity capital.
• Depositories’ and registrars’ right not to include payments on foreign debt securities, which were blocked due to the restrictions in European depository and clearing organisations, in the calculation of their equity capital.
• The decision on non-application of enforcement measures against depositories if:
  • they fail to comply with the legally established deadline for crediting/debiting of securities in the case of discrepancies with Russian depositories;
  • a foreign organisation, where a depository has an account of an entity acting on behalf of other persons for the record-keeping of the rights to securities underlying Russian depository receipts or to foreign issuers’ securities in the case of their public offering/trading in the Russian Federation, fails to comply with the criteria established by the Bank of Russia;³
  • a depository fails to comply with the requirements for the duration of its business day; or
  • depositories⁴ fail to comply with the established requirements for equity capital.
• The decision on non-application of enforcement measures against registrars for a failure to comply with the requirements for equity capital.
• The decision on non-application of measures against specialised depositories if:
  • they issue consents to:
    • open-end UIF MCs to conduct transactions that will entail a violation of the requirements for the amount of a liquidity cushion,⁵ provided that this violation was solely the result of market factors or MCs’ actions aimed at reducing possible risks or investment unit holders’ losses;
    • UIF MCs to conduct transactions that will entail a violation of the maximum concentration per legal entity due to an increase in UIFs’ assets of the share of funds in accounts and deposits and/or claims under a brokerage agreement by no more than 50%, provided that such violation was solely the result of market factors or MCs’ actions aimed at reducing possible risks or investment unit holders’ losses; or
    • NPFs and NPF MCs to conduct asset purchase transactions in the over-the-counter market, if there is no opportunity to conduct these transactions in the exchange market in order to fulfil obligations to depositors, members, and insured persons due to the lack of sufficient funds in pension savings (pension reserves);
  • they fail to comply with the deadline for exercising control over the calculation of UIFs’ net asset value (NAV) and the calculated value of one investment unit, provided that control is performed within five business days after the day, as of which the above values shall be calculated; or
  • they fail to comply with the requirement to notify the Bank of Russia of a detected violation by MCs and NPFs of their obligation to provide copies of ‘zero statements’ to a specialised depository.
• The recommendation to specialised depositories not to apply measures, provided for by the contract on a specialised depository’s services, against insurers failing to timely submit the full package of required documents.

In relation to investment platform operators, financial platform operators, and credit rating agencies:

• The decision on non-application of enforcement measures for a failure to ensure compliance with the amount (minimum amount) of their equity capital.
• The decision on non-application of enforcement measures for a failure to comply with (by no more than 30 calendar days) the deadline for submitting reporting.

Easing to be extended (including in a modified form) 

In relation to FMIs (considering the applicability of the easing):

•  The right not to disclose information that is sensitive to sanction risks, including data in financial statements:
  • the information about the reorganisation, ownership structure, members of the management bodies and other officials of FMIs, persons controlling FMIs, material facts affecting financial and business operations of FMIs that are reorganised through merger, acquisition, or transformation — until 1 July 2023; and
  • information included in notes to FMIs’ accounting (financial) statements and consolidated financial statements and in audit reports to these statements — through 31 December 2023.
• The option for FMIs to use, for the purposes of Bank of Russia regulations, international rating agencies’ credit ratings assigned as of 1 February 2022, no later than on 1 July 2023.

In relation to exchanges, clearing houses, and central counterparties:

• The decision on non-application of enforcement measures against commodity exchanges through 31 December 2023 if they:
  • fail to comply with the requirement to notify the Bank of Russia of non-standard transactions (applications) pursuant to Federal Law No. 224-FZ⁶ through the Bank of Russia’s remote terminal when these notices are submitted through the online account (in relation to trading systems); or
  • fail to comply with the deadline for submitting information to the Bank of Russia about significant deviations in the trading parameters when this information is submitted no later than on the business day following the day when these deviations were detected.
• The decision to entitle qualifying central counterparties to open accounts and place temporarily available assets with foreign infrastructures and non-resident banks not complying with the requirements for the rating established by the regulations, provided that these organisations are assessed within the risk management system and the whole set of the ratios limiting the concentration of assets placed with them is complied with.

In relation to depositories, registrars, and specialised depositories:

• The right, through 31 December 2023, not to disclose information sensitive to sanction risks about any material lawsuits of depositories and registrars, their subsidiaries and affiliates if rulings on these lawsuits can have a considerable effect on depositories’ and registrars’ financial position and business activity.
• The decision on non-application of enforcement measures against depositories if they fail to comply with the legally established deadline for crediting/debiting of securities solely in the case of discrepancies with higher-level foreign depositories — through 31 December 2023.
• Certain requirements for the compilation by specialised depositories of reporting pursuant to Form 0420872⁷ if they lack data on the value of an asset or the amount of a joint-stock (unit) investment fund’s liability, including because the specialised depository does not have a valuer’s report — through 31 March 2023 (further on, this will be stipulated in the amended version of the Bank of Russia regulation on the procedure for compiling and submitting reporting).
• Permission for specialised depositories to send a single notice to the Bank of Russia about a violation detected in a MC’s activities that occurred because it was impossible for the UIF MC to calculate the UIF’s net asset value, which was the reason for the suspension of the issuance, redemption and exchange of investment units — through 31 December 2023.
• The decision on an alternative procedure for payments on Eurobonds through Russian depositories without engaging foreign organisations — through 31 December 2023 (further on, this will be stipulated in a Bank of Russia regulation).

The Bank of Russia has already extended,⁸ through 31 December 2023, the decision on non-application of enforcement measures against depositories providing services for the record-keeping of rights to foreign issuers’ securities admitted to public offering and/or public trading in the Russian Federation for a failure to comply with the requirements for the period of depository activity.

New measures to support FMIs

In relation to central counterparties and settlement depositories:

Central counterparties and settlement depositories have the right to form loss provisions by instalments during five years⁹ (with the option to make provisions faster) — through 31 December 2027 — for completely blocked own assets if they are unable to manage such assets due to direct sanction-related restrictions and lack any alternative sources for their recovery (correspondent accounts, interbank loans, other claims on foreign banks, loans and other claims (including those arising from bonds) on borrowers from the countries that have imposed blocking sanctions, investments in subsidiaries in such countries, payments made on Eurobonds blocked in Euroclear/Clearstream, as well as foreign currency accounts with the National Settlement Depository (NSD)). In relation to blocked assets of central counterparties’ and settlement depositories’ clients, loss provisioning is not required because the contracts concluded by the NSD with clients contain provisions allowing non-fulfilment of clients’ orders due to blocking (a restriction on using) of related client funds.

However, instalments will not be allowed for other assets subject to restrictions (Eurobonds where ultimate debtors are Russian legal entities, Russian government Eurobonds, and loans to non-residents denominated in unfriendly states’ currencies where there are problems with servicing due to payment agents’ actions) if there are alternative sources for their recovery (for instance, payments in rubles to the benefit of Russian holders, issue of substitute bonds in rubles).

Instalments imply that, during these five years, central counterparties and settlement depositories are to uniformly reduce the net value (that is, net of provisions) of their blocked assets. They may thus decrease it either by gradually provisioning for these assets, or through their settlement (for instance, netting of claims and liabilities where possible; spin-off of such assets into a separate legal entity).

When central counterparties and settlement depositories use instalments, they must fix the value of their assets on their books in rubles at the exchange rate determined according to the procedure established by the Bank of Russia’s regulation on the accounting of blocked assets, which will further on prevent a paper profit or loss from the revaluation.

Additionally, through 31 December 2023, the calculation of central counterparties’ and settlement depositories’ liquidity ratios will not include their own assets if operations or transactions with them are limited due to the sanctions, including partially or fully blocked assets, and the calculation of these organisations’ capital adequacy ratios will take into account such assets with the risk weight of 100%. Besides, the calculation of the said ratios will not include client funds transferred to central counterparties’ and settlement depositories’ accounts in foreign jurisdictions and blocked by the said organisations due to the effective restrictions because the contracts concluded with them contain provisions allowing non-fulfilment of clients’ orders due to blocking (a restriction on using) of related client funds.

Concurrently, the Bank of Russia is working on envisaging the relevant provisions in the regulation.

If central counterparties and settlement depositories use instalments, they should not make dividend payouts until they complete provisioning in the required amount.

Depositories and registrars:

•  are entitled, through 31 December 2023, not to disclose information sensitive to sanction risks, namely:
  • the list of registrars and depositories, including foreign ones, where a depository has opened personal accounts (depository accounts) of a nominal holder;
  • the list of the registers of the holders of securities, the issuers of which carry out business in the territories that joined the Russian Federation and are serviced by a registrar; and
  • the list of issuers (UIF MCs and trust managers of mortgage collateral of mortgage participation certificates) carrying out business in the territories that joined the Russian Federation who perform the functions of a registrar to accept and transfer documents under the related contract.
• Depositories and registrars that are not credit institutions¹⁰ will be allowed to gradually, during 2023, discount the value of blocked assets for the purposes of the calculation of their equity capital.
  
  The Bank of Russia has assessed the impact of the value of the blocked assets on the requirements for financial stability. According to the results of the assessment, there is no systemic effect on market participants as regards the impact of potential losses related to the said assets on institutions’ financial stability.
  
  Nonetheless, in order to smooth the negative impact of the recognition of losses related to the completely blocked assets and considering the cancellation of regulatory easing, the Bank of Russia has decided to allow depositories and registrars to gradually, during 2023, discount the value of such assets when calculating their equity capital. Other assets subject to restrictions (for instance, on Eurobonds where ultimate debtors are Russian legal entities if there are problems with servicing due to payment agents’ actions) where there are alternative sources for their recovery (for instance, issue of substitute bonds in rubles) will be included in the calculation of equity capital according to the standard procedure.
  
  Depositories and registrars should not include blocked client assets in the calculation of their equity capital if the contracts concluded with clients contain provisions allowing non-fulfilment of clients’ orders due to blocking (a restriction on using) of related client funds.
  
  When central counterparties and settlement depositories follow such approach, they must fix the value of their assets on their books in rubles at the exchange rate determined according to the procedure established by the Bank of Russia’s regulation on the accounting of blocked assets, which will further on prevent a paper profit or loss from the revaluation.
  
  Companies will be able to apply this approach if they do not make a decision on dividend payouts (profit distribution) during the period from 1 January 2023 through 31 December 2023.

Information system operators where digital financial assets are issued and persons issuing digital financial assets:

•  are entitled, until 1 July 2023, not to disclose information sensitive to sanction risks about the beneficial owner of a person issuing digital financial assets.

Financial platform operators not carrying out any other activities of non-bank financial institutions:

• will not be subject to certain Bank of Russia regulations concerning accounting and accounting (financial) statements — through 31 December 2023.

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