Requirements for professional participants’ financial stability increase
Beginning on 1 October 2021, professional securities market participants will be obliged to comply with the capital adequacy ratio and form provisions for credit claims. This draft ordinance has been published by the Bank of Russia to discuss it with the market community.
The capital adequacy ratio is planned to be established six months earlier than was assumed before, and the transition period will be reduced from three years to 18 months. This ratio will equal 4% at the first stage and then increase to 6% from 1 April 2022 and 8% (the target) from 1 October 2022.
When calculating the ratio, provisions for impairment of assets that are credit claims will be subtracted from core capital. Where claims are secured by high-quality assets, it will be allowed to reduce provisions. A similar approach is applied currently to banks. Brokers do not have any established requirements for provisions, although, just as banks, they may use clients’ funds for their benefit, including to issue loans and conduct OTC repos that increase a broker’s counterparty credit risk.
‘We have decided to launch these ratios earlier in order to improve professional participants’ reliability, since the number of their clients is growing very fast. We are aiming to create a regulatory framework that would protect clients in cases when a broker’s credit risks materialise. Investments involve inherent risks. However, risks to professional participants’ financial stability amid rapid growth in the market should not affect their clients’, said Vladimir Chistyukhin, Deputy Governor of the Bank of Russia.