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Financial infrastructure and financial market regulation


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Ministry of Finance Pushes Capital Requirements for Licensed Participants

24.04.2012 14:22 / Interfax

The Russian Ministry of Finance favors higher proprietary capital requirements for licensed stock market participants, Deputy Minister Alexey Savatygin told the press on Tuesday.

“I think when the fuss is over (new government appointed – Ed.), it would be more logical to debate new capital requirements for market participants. They can be categorized by scale, we don’t have to lump them all up, but raising the bar for the capital and its quality is vital”, he said.

Deputy Minister noted that the limit for booking agents is RUB 1bn with RUB 500mn Irrevocable Bank Guarantee, while the bar for licensed participants is a mere RUB 35mn. “There has to be some logic to this regulation”, said Savatyugin.

Today, the minimum for proprietary capital is RUB 35mn for dealers, brokers and fund managers, RUB 100mn for registrars, RUB 150mn for the stock exchange.

Former Head of the Federal Financial Markets Service (FFMS) Vladmir Milovidov was in favor of significantly higher proprietary capital requirements. He masterminded the FFMS regulation to raise the limit for licensed participants twice: from 1 July 2010 and 1 July 2011. Following the first squeeze, the Ministry of Finance and the Ministry for Economic Development campaigned for these decisions to be stipulated in legislative acts, not FFMS regulations. A second capital requirements hike was cancelled by the new Head of FFMS Dmitry Pankin.

“I cannot give my full support to the FFMS standpoint, as I consider their capital requirements too excessive for insurance companies and too liberal for licensed participants. In my opinion, licensed participants are under the same obligations to their clients as insurers”, Savatyugin points out.

Prior to the initial 2010 increase in capital requirements, the National Association of Stock Market Participants (NAUFOR) petitioned FFMS to introduce a new participant type in the Securities Market Act – the financial consultancy, with less rigid capital demands. The association’s idea was that non-compliant participants could still remain in the market as financial consultants. This was especially vital for protecting regional businesses.

“The financial consultants thing is cooked by the lobby, serving certain parties’ interests, including SROs, small companies that are not competitive”, Savatyugin said on Tuesday.

Deputy Minister pointed out that financial consultants as a separate licensed business, are “completely irrelevant”. “There is no barrier for offering consulting services whatsoever, you can go ahead and advise. Why would anyone need advice? If you are smart, if you draw clients, go ahead and advise. You don’t need a license to be, say, a tax consultant”, said Savatyugin.

He stated that the idea was “pushed by NAUFOR and certain others”.

“If you are in the securities market, you are either a manager, a broker or a dealer. If you give investment advice, you don’t need to have a license or be regulated”, says Deputy Minister.

Project Group №1Dmitry PankinAlexei Savatyugin