The Russian Financial Market: What Lies Beyond the Horizon of Sanctions? (dialogue between the regulator and regulated)

Key conclusions

Sanctions keep upping the pressure, it is too early for forecasts 

“We have not passed the stage of sanctions raising the pressure. I would love to discuss how we will be building our new reality, but things are still too blurry and too much uncertainty lies ahead. This is why we find ourselves in the middle of the global financial market change <…> I believe we can start this discussion only when we hit rock bottom of sorts and it is clear that escalation is over,” Sergey Shvetsov, Chairman of the Supervisory Board, Moscow Exchange.

“When the crisis hit, the first step we made was ensuring financial stability. <…> Then we have reached the second stage – it is crucial – this is where we find ourselves now. We are trying to untangle a bunch of problems we are facing. Stage three will be the development stage. I fully agree with Sergey [Shvetsov, – Ed.]. It will start when we reach a plateau. We are at a point where things are just too volatile,” Vladimir Chistyukhin, First Deputy Governor, The Central Bank of the Russian Federation (Bank of Russia).

Financial sector developing is happening in unchartered waters 

“Many people in the audience remember the 90s and the crisis of 1998, when payments around the country changed, inflation skyrocketed, and the rouble sank. Probably, something of the kind was expected in this situation, but the changes took a totally new path,” Alexey Guznov, Secretary of State – Deputy Chairman, The Central Bank of the Russian Federation (Bank of Russia).

“When the first steps were taken in early February, we had many illusions that we could just go back to square one. What has changed? The fact that there are basically no illusions at this point. It helps us make conscious and well-balanced further steps,” Sergey Shvetsov, Chairman of the Supervisory Board, Moscow Exchange.

The need to rely on the country’s internal financial sources  

“Being a country with a negative equity account – it means we are the donors – Russia almost always has a positive current account and a trade balance. We are exporters. And we have capital outflows on this balance. With the Western markets closed, this capital has nowhere to flow out. So, what was flowing out, is not flowing anymore. That may be enough. And if we create normal institutions to protect private property, competition, and business from administrative and sometimes illegal pressure, then internal capital will be quite sufficient,” Sergey Shvetsov, Chairman of the Supervisory Board, Moscow Exchange.

“Since we got nothing else to do but rely on our own internal resources, we need consultants and professional governors to have the full information on investment potential. Here I fully agree with Sergey [Shvetsov, – Ed.],” Vladimir Chistyukhin, First Deputy Governor, The Central Bank of the Russian Federation (Bank of Russia). 

Resolving international financial problems is purely legal, ligation-related 

“As for foreign securities, today I do not see anything else but going to court. Probably, a class action lawsuit should be filed. Imposing sanctions on the National Settlement Depository [NSD, – Ed.], the EU has basically blocked other people’s assets. The NSD is neither a nominal owner nor a nominee. It is an accounting institution that works in the interest of third parties,” Sergey Shvetsov, Chairman of the Supervisory Board, Moscow Exchange.

“This situation will surely create a lot of work for lawyers. The risks Sergey [Shvetsov, – Ed.] mentioned are just the first ones that surfaced. It can be a whole tree with multiple big and small branches. Our profession will take the stage here,” Alexey Guznov, Secretary of State – Deputy Chairman, The Central Bank of the Russian Federation (Bank of Russia).

“We do not have any information on the decision-making process for the sanctions against the NSD. However, I am confident that partially the motivation behind this decision was solely to remove the risk of a lawsuit from foreign investors, rather than from Russian investors, regarding not being able to receive any payments for a long period of time because strict compliance procedures have been frozen,” Vladimir Chistyukhin, First Deputy Governor, The Central Bank of the Russian Federation (Bank of Russia).

PROBLEMS

Funds and assets of economic actors abroad have been blocked 

“More and more companies, economic actors, citizens and households cannot access part of their assets – they have been blocked. Basically, it is a hole in a corporate or private balance. Those funds cannot be used today,” Vladimir Chistyukhin, First Deputy Governor, The Central Bank of the Russian Federation (Bank of Russia).

“We have not been very successful in getting Russian investors their funds through the financial market instruments that use the foreign infrastructure that has been frozen or stopped performing its function,” Sergey Shvetsov, Chairman of the Supervisory Board, Moscow Exchange.

rights of Russian investors  – not foreign – have been curtailed

“When sanctions were imposed, it became very convenient to cut off foreign infrastructure elements, which led to major violations of rights of those Russian investors who invested in these instruments, as well as those Russian creditors, who used this infrastructure to get money for economic projects,” Vladimir Chistyukhin, First Deputy Governor, The Central Bank of the Russian Federation (Bank of Russia).

“We need to find a balance between the interest of Russian issuers and Russian investors. If we manage to factor in the interests of foreign investors for the sake of future trust, it would be great. I do not know of a single sanction that would hurt foreign investors imposed by the Russian Federation,” Sergey Shvetsov, Chairman of the Supervisory Board, Moscow Exchange.

SOLUTIONS

Solution to the problem of unqualified investors is needed

“It is obvious that investors – especially the unqualified ones – need to have an opportunity to pull out of these obligations. <…> It is potentially a significant part not of their safety net, but some residual investment resources,” Vladimir Chistyukhin, First Deputy Governor, The Central Bank of the Russian Federation (Bank of Russia).

“I am sorry, but we do not have to make the same mistake twice. We allowed a foreign instrument to the Russian market and gave unqualified investors the opportunities to buy it through stock market. It happened in 2016. We viewed the custodial risk as zero. <…> I am absolutely convinced that at least unqualified investors should not purchase things with a large element of custodial risk,” Sergey Shvetsov, Chairman of the Supervisory Board, Moscow Exchange.

For more information, visit the Roscongress Foundation’s Information and Analytical System roscongress.org.

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