Bank of Russia presents concept of improving retail investors’ protection

The concept includes a wide range of measures from setting new criteria for granting the status of a qualified investor, which remained unchanged for more than five years, to streamlining the activities of investment advisers.

These changes are a continuation of the systemic work provided for by the Russian Financial Market Development Programme, as well as a prompt response to new risks.

Specifically, foreign assets in the accounts of more than five million investors were blocked because of sanctions. Due to forced margin calls, clients’ outstanding amounts to 11 major brokers have reached 2.5 billion rubles in 27,800 portfolios since the end of February 2022. Concurrently, the regulator receives complaints from qualified investors, among others, the number of which was up 2.7 times over the last two years.

The developed proposals include an increase from 6 million rubles to 30 million rubles in the amount of assets required to become a qualified investor, and a revision of the requirements for their formation. This complies with the international practice of qualifying investors by their property status. 

It is planned to temporarily include transactions with foreign securities in the list of transactions available only to qualified investors. This is mainly due to infrastructure and sanctions risks, which may lead to an increase in the amount of the blocked assets of retail investors.

The maximum leverage available to non-qualified investors will be revised with the introduction of mandatory risk notification when carrying out transactions with borrowed funds.

The regulator will continue to improve the procedures for testing non-qualified investors before they purchase complex financial instruments. The test will include more questions, and the time intervals between retest attempts will be introduced.  

It is also planned to create unified registers, which will include qualified investors and non-qualified investors who have passed the test. This will allow clients not to go through the relevant procedures again when they change their broker.

It is expected that these and a number of other innovations will be implemented by decisions and regulations of the Bank of Russia, some of which will provide a framework for draft laws. The proposals will be discussed with lawmakers, market participants and the Government.

The first step in the series of new measures is to recommend brokers and exchanges to suspend sales of foreign securities to non-qualified investors. The restrictions do not apply to securities of the Russian Ministry of Finance and foreign issuers issued in Russia, as well as securities of issuers engaged in economic activities in the Russian Federation.