Financial Markets: Increasing Complexity, Maintaining Stability

3–5 July 2019, ST. PETERSBURG

    Regulators and SROs are to consider general assessment criteria 

    The approach to determining the criteria for assessing the business reputation, qualifications, and financial status of founders, management bodies, and officials of financial companies may be set to change. This issue will be discussed at a roundtable to be held at the 25th International Financial Congress.

    Representatives of the Ministry of Finance and the Bank of Russia, financial market players, and self-regulating organizations (SROs) will discuss new approach to assessing business reputation. The speakers include Deputy Governor of the Bank of Russia Mikhail Sukhov, Director of the Financial Policy Department of the Ministry of Finance of the Russian Federation Sergey Barsukov, President of the Association of Russian Banks Garegin Tosunyan, President of the National Finance Association Konstantin Volkov, and others.  

    Requirements regarding the business reputation, qualifications, and financial status of owners, management bodies, and senior officials of credit institutions are already in place. In addition, in July 2015, a law was passed “On the activities of credit rating agencies in the Russian Federation”, establishing requirements relating to the business reputation of senior managers and shareholders of rating agencies. Analogous requirements have been established by a special law for the heads of self-regulating organizations in the financial markets.  

    Garegin Tosunyan, President of the Association of Russian Banks:

    “The financial market cannot develop without effective risk management, timely identification of crisis situations and relevant countermeasures, and protection of the rights and legitimate interests of investors. The explosive development of IT and its universal penetration of business, against a background of growing competition, increases the importance of the role of owners and heads of financial institutions in countering the temptation to make easy money when regulation fails to keep up. The reputation of those setting the course for the development of the business ultimately becomes one of the key factors in ensuring that the business fully complies with the requirements set by the regulators and the business’s viability - not only today but tomorrow, too. For this reason, today we must discuss what business reputation actually is, how it is determined, what it consists of, and how these requirements can constitute part of a proactive approach to risk management in the activities of market regulators and participants.”

    Mikhail Sukhov, Deputy Governor of the Bank of Russia:

    “We have accumulated a tremendous amount of experience in Russia of exercising control over the business reputation of bankers. It is essential to note the importance of the criteria based on the legislation allowing bad faith to be quashed both by Bank of Russia instruments and by making information public. It is important that strict standards be applied to the reputations of both heads of and key participants in banks. Business reputation standards need further improvement through fully achieving the substantive goals of regulation, including in relation to whether the regulatory and supervisory burden on good faith market players is rational.”

    Representatives of the Bank of Russia have repeatedly announced that business reputation will soon be an essential component of regulation for the entire financial market, from banks to professional players on the securities market and micro-financing entities. In parallel, current requirements are becoming more stringent. In April 2016, it was revealed that the Council of the Federation is drafting a bill increasing the liability of bank management teams for unethical conduct. For instance, the document proposed disqualifying for life heads and owners of financial companies whose business reputation has been tainted by major harm caused to depositors and creditors. The new law should apply not only to banks but also to auditing firms.  

    The unified approach to requirements which would close access to the market for obviously unethical or incompetent players is still being developed. It is not out of the question that the criteria for assessing business reputation might change. A relevant bill was submitted in spring 2015 to the State Duma of the Federal Assembly of the Russian Federation by Deputies Nikolai Gonchar, V.V. Kuzmin, and Anatoly Aksakov. This is to be discussed by the participants in the roundtable ‘Improving requirements on business reputation and qualifications’ on June 30, 2016 as part of the 25th International Financial Congress.