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Bank of Russia presents first results of non-qualified investors’ testing

24 November 2021

Over the first month after the launch of the new procedure, investors most often took the test to purchase foreign shares (24%) and shares that are not on quotation lists (20%). The tests for understanding risks inherent in these instruments turned out to be the most difficult for investors — only 28% and 29% of them, respectively, were able to give correct answers to all the questions.

This conclusion is based on the data requested by the Bank of Russia from the largest brokers.

Non-qualified investors are to pass mandatory testing before concluding transactions with complex financial instruments beginning from 1 October. Over the past month, the brokers surveyed by the Bank of Russia carried out over 2.5 million tests. In the case of a failure, an investor may take the test once again, and the number of attempts is unlimited. Furthermore, even if the investor fails the test, it is allowed to resort to the ‘last word’ principle and conduct the desired transaction to a limited amount.

As compared to the tests on shares, fewer investors took the tests for the understanding of ETF, margin transactions, risks inherent in derivatives, Russian unrated bonds, and structured bonds. The number of the tests on repos was minor.

Investors found it relatively easy to answer the questions of the tests on bonds issued by foreign companies without the required credit rating, as well as on closed-end unit investment funds’ investment units (63% and 60% successful attempts, respectively).

‘This is a new procedure for the market. Jointly with self-regulatory organisations, we will analyse the progress and results of the testing and determine how this mechanism may be enhanced further,’ said Mikhail Mamuta, Head of the Service for Consumer Protection and Financial Inclusion of the Bank of Russia. ‘We have found out that although some brokers carried out a large number of tests, the portion of successful attempts barely reached a third of the total number, whereas other brokers recorded up to 80% of positive results, which might suggest misconduct in the course of testing by some market participants. As part of ongoing supervision, we will closely monitor such cases and take appropriate measures in relation to organisations using unfair practices.’

According to recently adopted Federal Law No. 192-FZ, dated 11 June 2021, the Bank of Russia is entitled to demand a buyback of a financial product or instrument if the testing procedure or any other selling rules are violated.