Obligatory requirements to founders and management bodies of financial institutions are strengthened

According to the Federal Law No. 281-FZ of July 29, 2017 “On the amendments to individual legislative acts of the Russian Federation improving obligatory requirements for the founders (participants), management bodies and officials of financial institutions ”, prosecution for premeditated or fraudulent bankruptcy of credit institution is a reason for future rejection of the Central Bank of the RF (the Central Bank) to review such persons being appointed to executive positions in banks, as well as rejection of taking a significant stake in the capital.

The law amended the Federal laws “On banks and banking activities ”, “On the Central Bank of the Russian Federation (Bank of Russia)”, “On non-state pension funds”, “On investment funds ”, “On microfinance activity and microfinance organizations”, “On organization of insurance activity in the Russian Federation” and other laws concerning financial activity.

The amendments established the following provisions:

• - with its legislative instruments the Central Bank has the right to specify requirements to financial situation of legal entities of credit institutions. This is also applied to legal entities (shareholders) holding over 10% of shares (stakes) or controlling such shareholders, as well as to legal entities (shareholders) holding less than 10% of shares (stakes) and being included in the group of entities holding over 10% of shares (stakes) or controlling such shareholders (participants);
• - top executives of insurance organizations (appointed or elected in agreement with the insurance supervisors) were specified as being complied with qualifying and goodwill requirements. Criteria of non-compliance with goodwill requirements were specified as well;
• - requirements to financial situation and goodwill of founders or participants of management companies (applied or elected by the Central Bank) were set;
• - the procedure of administration of complaints by the Central Bank concerning decisions on recognition of persons not meeting qualifying and goodwill requirements was specified;
• - taking into account the norms of the Federal Law “On insolvency (bankruptcy)”, the positions for assessing goodwill of chief officers, members of the boards of directors or supervisory boards, purchasers and owners of more than 10% of shares (stakes), controllers, individual executive bodies of credit institutions and microfinance companies were adjusted;
• - appointing or electing chief executive officers and deputy chief executive officers, members of the collegial executive body, chief accountants and their deputies of microfinance companies (including branches), is carried out only upon preliminary agreement with the Central Bank. At the same time, appropriate requirements are established for the founders or participants of the microfinance company and for making transactions with their shares (stakes).

The Federal Law will come into force from January 28, 2018.

Assessing the adopted amendments, experts note that sanctions for violation of goodwill requirements apply almost to the entire financial market - insurance companies, non-state pension funds, management companies of investment funds, mutual funds and microfinance companies. For chief officers and owners who led a credit institution to criminal bankruptcy or repeatedly violated the requirements, a lifetime disqualification in business and ban on holding more than 10% of the shares of any bank were introduced. For other violators the period of professional disqualification has been doubled, i.е. up to 10 years.

Before the signing of this Federal Law, the Central Bank began posting data on its website on bringing the officials of credit institutions which were declared insolvent (bankrupt) to civil and criminal liability for the period from 2005. Previously, such information was not published. As of June 19, 2017, this list contains information on 287 banking and non-banking credit organizations and about 213 individuals.

Subscribers of the Information and Analytical system Globas have possibility to get acquainted with activity of all banking and non-banking credit institutions and their branches with active licenses. The System also contains information about all credit institutions and their branches with revoked licenses.