Motivated judgement: regulator’s view

The Bank of Russia has produced an advisory report analysing the possible areas of application of motivated judgment (professional appraisal conducted by the regulator in addition to formalised regulations) and the prospects for its implementation in supervisory practice. It has now been published for public consultation on the regulator's website.

Regulation and supervision based solely on strict rules do not always allow the Bank of Russia and financial market participants to promptly take into account the rapidly changing conditions of the modern world.

A principles-based approach, in addition to the current legislation, will enable a balance to be maintained between the application of concisely regulated procedures and the assessment of the qualitative characteristics of a financial institution’s operations. It will also facilitate the timely mitigation of negative trends and the preventive reaction to emerging risks.

That said, the Bank of Russia already applies certain elements of motivated judgment in its supervisory practice concerning credit institutions. For example, it is used to determine whether parties are related and to valuate reserves created and collateral.

The public consultation report is aimed at reviewing the gradual expansion of the scope of the Bank of Russia’s application of motivated judgment in its supervision over all participants in the financial market.

The report analyses the priority areas for the use of motivated judgment. These include identifying related parties and groups, organisations’ access to the financial market, valuing assets and liabilities, carrying out fiduciary duty and the quality of an organisation’s risk management and internal control.

The Bank of Russia proposes that market participants also discuss a new procedure for developing and applying motivated judgment. It should be comprehensible, transparent and based on constructive dialogue between the regulator and the organisation under supervision. Also, the financial organisation should have the opportunity to defend its interests and contest decisions made by the supervisory authority via pre-trial procedure.

Please send any comments, including answers to the questions of the report, as well as suggestions and comments on the report, to the following email addresses: bjs2@cbr.ru, krasavinaoo@cbr.ru, minnullinrd@cbr.ru by 1 September 2017.