The regulator has decided to make bank owners as well as executives personally accountable for rectification — says a draft Decree published on the Central Bank website. The bank’s shareholders may also receive orders from the CB if they are in breach of disclosure rules or fail to perform anti-bankruptcy duties or if a deal with a controlled bank has led to breach of CB limits.

The Central Bank has the right to do so. The Shareholder Companies Act makes an exception for banks, investment and insurance companies — these are regulated by other federal laws, says Roman Malovitsky of Egorov, Puginsky, Afanasiev and Partners. The Central Bank Act allows it to send orders to bank owners. The Decree details the application of this law, says Probiznesbank VP Sergey Letunov.

The Central Bank Act sets a penalty for bank owners for failure to comply with orders in 45 days: their GSM voting rights are suspended until the order has been acted upon or withdrawn. If the shareholder attempts to participate in a GSM regardless, the CB can protest decisions voted for by the shareholder. These penalties have not yet been applied to shareholders, says Malovitsky.

The CB currently forwards orders to CEOs or the bank as a legal entity, says a major bank legal counsel. This procedure is due to shareholders not taking part in the bank’s daily management, explains another bank’s top executive.

The supervisor must be able to get through to the owners, concurs Deputy General Director at Deposit Insurance Agency Andrey Melnikov. The CB has to do everything within its power: sometimes informing the shareholders is enough, sometimes not, depending on the situation, he says.

The CB initiative is correct, agrees Uralsib Deputy CEO Ilya Filatov: there are too many cases when shareholders claim to be unaware of what is going on in controlled banks. Informing shareholders is a must — the CB leaves them no chance to pass the blame to the Board, he says, adding that it could be complicated since beneficiaries may reside abroad.

The CB can use orders to shareholders when the bank’s management ignores the regulator, says OTP Bank’s Deputy CEO Sergey Kapustin. This sends a very strong message to shareholders, and will likely be used by the CB as the final warning, he suggests.

According to the Central Bank Act, orders may be sent to owners of a 10%+ stake in the bank, says a CB representative.

Daria Borisyak

Financial markets megaregulator, Project Group №1