However, for this, the Bank of Russia will have to shift its ground of financial regulation.
“The Russian financial sector has been riding the digital wave quite successfully. We are in third place globally in terms of financial technological penetration,” said Ms. Nabiullina, opening the Congress.
It, she said, creates new challenges for the Bank of Russia, the main one of which is related to the development of platform solutions, when one seller can offer different types of financial products, as well as non-financial players entering the financial services market, including Big-Tech companies.
“How do we regulate non-financial companies providing financial services? How do we regulate those who sell a variety of products – banking, insurance, and investment? Who should have access to Bank of Russia’s money? Just bank, as it is now? Or FinTech companies as well? Or any company providing financial services?” inquired Ms. Nabiullina from the stage.
She proposed all participants to look for answers to these questions.
Now the Bank of Russia differentiates among financial market participants. Regulation of banks, insurance companies, microfinance organizations follow the requirements to a legal entity, while control of professional participants of the securities market, collective investment institutions, and trade organizers is based on the requirements to their operations.
According to Ms. Nabiullina, the Bank of Russia needs to move towards regulating operations, not entities.
“The market development trends I have mentioned are pushing us to shift the regulation emphasis from the requirements to a legal entity to the requirements for the operations it runs. If a company provides financial services, it is to get a license for such practice,” said the head of the Bank of Russia.
It will bring FinTech companies under the Bank of Russia’s regulation, but it will also open access to its loans. “We are also thinking about opening FinTech direct access to operations with the Bank of Russia,” said Ms. Nabiullina.
The Governor of the Bank of Russia surprised Alexey Moiseev, Deputy Finance Minister of the Russian Federation, who told RIA Novosti that he is yet to research this proposal.
“We need to look at exactly which organizations we are talking about,” said Moiseev, recalling that the Bank of Russia pledged to refrain from financing the real economy. Big Tech is a part of it.
The development of platform solutions also leads to banks becoming the primary sales channel for a wide variety of financial products. For example, already now they account for the lion’s share of sales of life insurance investment policies, and brand new products are emerging.
“At that, the products offered are becoming progressively complex, they require risks expertise from the consumer,” said Ms. Nabiullina.
The Bank of Russia fears that a spontaneous, uncontrolled supply of such a variety of tools to the people may, sooner or later, lead to customer frustration, as it has already happened with the rapid growth of the market for investment life insurance. There are two ways to avoid deceived expectations, either the introduction of heavy state regulation of sales rules for each instrument, or banking self-regulation.
Ms. Nabiullina recalled that in other sectors, self-regulatory organizations (SROs) set the standards of operations and rules of conduct for their members and see that fair play is observed.
Ms. Nabiullina suggests existing associations begin at least partially performing in this capacity: start with developing standards, and leave control to the Bank of Russia. “Or we are to establish a full-fledged self-regulating institution in the banking industry when the SRO will develop standards and monitor their compliance,” she added.
Anatoly Aksakov, Chairman of the Committee of the State Duma of the Federal Assembly of the Russian Federation on Financial Markets, later told reporters that the regulator is already negotiating with the Association of Banks of Russia (AsRos) to create such an SRO.
“Bankers are wary of this idea, they fear that there will be yet another regulator and minimal benefits,” said Mr. Aksakov.
To implement the Bank of Russia’s idea, at least one more tough step lies ahead – the merger of two Russian banking associations: AsRos headed by the Bank of Russia’s Georgy Luntovskiy, and the Garegin Tosunyan’s Association of Russian Banks (ARB).
“The idea itself is understandable, but the whole history of the Russian banking market suggests that it will be difficult to implement,” Mikhail Zadornov, Chairman of the Management board of Otkritie FC Bank commented the Bank of Russia’s initiative to journalists.
The Bank of Russia has long been watching the field of financial technology. In 2016, the FinTech Association was established. The association members are the Bank of Russia, Sberbank, VTB, Alfa-Bank, Gazprombank, Otkritie Bank, Russian Standard, MKB, National Payment Card System, Kiwi Bank, AK Bars Bank, RNCO Payment Centre, Tinkoff Bank, Raiffeisenbank, and Moscow Exchange. Associate members include MTS, MB Innovations, Rostelecom, OOO Region Financial Services, and VEB.
The association is developing and testing financial technologies. For example, the Masterchain platform designed by the association enables online payments, prompt confirmation of customer or transaction data, and swift generation of financial services. Also, the Masterchain accelerates the exchange of information between counterparties and provides the necessary credibility during business transactions.