SPECIAL ALERT
11 December 2013
Special review of amendments to banking legislation introduced
by Federal Law No. 146-FZ
2 July 2013 Russian President
signed into Federal Law No 146-FZ
introducing amendments to Federal
Laws "On Banks and Banking Activity", "On the Central Bank of the Russian Federation (Bank of Russia)" ("banking legislation") and other legislative acts of Russia.
Federal Law No. 146-FZ (the "Law") has
been adopted to bring Russian banking
legislation regulating supervision and disclosure of information by credit institutions, banking groups and bank holdings
on their activity in accordance with international practice. Key amendments relate
to banking groups and bank holdings,
participation interests in the charter capital of credit institutions, requirements to
credit institution officials and BoD members, as well as risks undertaken by such
credit institutions.
Banking groups and bank holdings
The Law specifies definitions of a banking
group and a bank holding.
The Law defines a banking group as an
association of legal entities (before the
amendments – of credit institutions) without its own legal identity, where one or
more legal entities are controlled or significantly influenced by one and the same
credit institution.
A bank holding is defined as an association of legal entities without its own legal
identity that includes not less than one
credit institution (as well as other legal
entities that are not credit institutions, if
there are any) controlled by a legal entity
that is not a credit institution, provided
that the banking activity of the holding is
not less than 40 per cent from its overall
activity.
For banking group and bank holding participants definition purposes, control and
significant influence shall be defined in
accordance with the International Financial Reporting Standards (the "IFRS")
adopted in Russia. Before the amendments similar criteria were defined by the
Law on Banks and Banking Activity.
goodwill, the Bank of Russia shall issue an
order to remedy the breach or to reduce
participation in the charter capital
(termination of control). From the date
when such order has been received till
the date of its execution or annulment
such owners shall have voting rights atIf a bank holding parent company does
tached to shares not exceeding 10 per
not comply with banking legislation recent from the shares of the credit instituquirements, the Bank of Russia may:
tion.
1) impose limitations on transactions beOfficials and BoD members of a credtween a credit member institution and the
it institution
bank holding parent company or member
companies for up to six months;
The sole executive body, its deputies,
collective executive body members, chief
2) prohibit performance of certain bank
accountant, deputy chief accountants of a
operations with the bank holding parent
credit institution, chief representative or
company and member companies for up
chief accountant of a credit institution
to one year.
branch shall comply with goodwill requireAcquisition and trust acquisition of ments. Non-compliance with these requirements leads to refusal of the Bank of
shares in a credit institution
Russia to approve nominees for these
The Law provides a wider list of events
positions, and if a nominee for a credit
requiring prior consent of the Bank of
institution to be established is not compliRussia for acquisition of shares in a credit
ant, such non-compliance leads to refusal
institution.
to perform state registration of the credit
The maximum amount of shares in a institution.
credit institution subject to acquisition
The amendments, inter alia, specify:
without prior consent of the Bank of Russia has decreased from 20% to 10%. In the list of officials subject to limitations
addition, certain thresholds have been set provided by the Law on Banks and Bankforth for acquisition of shares in a credit ing Activity;
institution which, when exceeded, require
the list of entities where officials shall
prior consent of the Bank of Russia.
not hold chief representative or chief acAlso, the Law provides that parties acquir- countant positions.
ing shares in a credit institution shall
BoD members shall comply with goodwill
comply with goodwill requirements.
requirements, too. If a court judgement
Parties acquiring more than 10 per cent of guilt has come in effect in relation to a
of shares in a credit institution, and their credit institution BoD member for an insole executive bodies shall comply with tentional crime, or a court judgement
goodwill requirements. Non-compliance providing an administrative penalty in the
with such requirements leads to withhold- form of disqualification has come in efing of prior consent to share acquisition, fect, such BoD member shall be deemed
and when shares are acquired upon es- withdrawn from the BoD starting from the
tablishment of a credit institution, to re- effective date of the relevant court judgefusal to perform state registration of such ment.
credit institution.
A credit institution may impose certain
If parties owning more than 10 per cent official duties implying a right to dispose
of shares in a credit institution or parties of monetary funds in the accounts of the
performing control over them (their sole Bank of Russia on persons holding other
executive bodies) have unfavourable positions, subject to their compliance with
The Law provides a wider list of activities
that shall not be performed by the management company of a bank holding and
provides an obligation to notify the Bank
of Russia on the establishment of such
management company and its authorities.
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SPECIAL ALERT
11 December 2013
qualification and reputation requirements. other official with competence over transactions the outcome of which may affect
Risk and capital management and
compliance with statutory requirements
control systems
by the credit institution or may give rise
New clause 11.1-2. in the Law on Banks to grounds for insolvency prevention arand Banking Activity provides require- rangements;
ments to risk and capital management
3) a party that is deemed as such under a
systems and an internal control system
resolution issued by the Bank of Russia's
for credit institutions.
Banking Supervision Committee.
Heads of risk management, internal audit
For maximum risk amount to be deterand internal control services of any credit
mined per group of related borrowers, the
institution shall comply with qualification
Law provides a more precise definition for
and reputation requirements set forth by
a group of related borrowers.
the Bank of Russia.
A group of related borrowers shall consist
Under the Law, BoD competence includes
of borrowers: (1) where one of the borissues related to approval of risk and caprowers controls or has a significant influital management strategies for a credit
ence on another; (2) that are controlled
institution, banking risk management
or significantly influenced by a third partechniques and quantitative risk assessty; (3) that are interrelated in such a way
ment model application procedure, as
that financial decline of one party may
well as assessing compliance with such
lead to non-performance of obligations to
documents by executive bodies of a credit
a credit institution (banking group) by the
institution.
other party. Control and significant influStatutory requirements
ence shall be defined under the IFRS
adopted in Russia.
The Law introduces a new statutory requirement for credit institutions – maxi- Information disclosure
mum risk per party related to the relevant
The Law provides amount and terms for
credit institution (group of parties related
disclosure of information on the activity of
to the relevant credit institution).
a credit institution, banking group and
Under a new clause 64.1 in the Law on bank holding. These amendments shall
the Bank of Russia, such requirement is come in effect 1 January 2014.
represented by a percentage from the
A credit institution shall disclose an annuamount of credit institution equity funds
al accounting (financial) statement
(capital) and shall not exceed 20 per cent
(before the amendments, a balance sheet
from credit institution's equity funds
and a profit and loss statement), an audit
(capital).
report on such accounting statement and
A party related to a credit institution shall its accuracy, on an annual basis; an intermean:
im accounting (financial) statement
(before the amendments, a balance
1) a legal entity performing an activity
sheet, a profit and loss statement, inforcontrolled or significantly influenced by
mation on capital adequacy, information
the credit institution;
on doubtful loan and other asset re2) an individual (his/her immediate rela- serves), on a quarterly basis. In case of
tives) that (i) controls or has a significant an interim accounting (financial) stateinfluence on the credit institution; (ii) is a ment audit such statement shall be disBoD member, chief representative or an- closed together with an audit report pre-
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pared by an audit company.
Banking group head credit institution and
bank holding head company shall annually disclose consolidated financial statements and a related audit report (before
the amendments, consolidated accounting
statements and consolidated profit and
loss statements). In addition, banking
group head credit institution shall every
six months disclose interim consolidated
financial statements (before the amendments no obligation was provided to disclose the information in such intervals).
Furthermore, the Law provides an obligation for credit institutions and banking
groups to disclose information on risks.
Credit institutions shall disclose information on risks undertaken, their assessment procedures, risk and capital management on a quarterly basis; head credit
institution of a banking group shall disclose such information every six months.
Labour
Remuneration system in a credit institution shall be in accordance with the nature and scope of its transactions, performance results, level and combination of
risks undertaken, and shall provide an
opportunity to reduce or cancel payments
if the credit institution performance results (in whole or in its respective business) are negative.
If the Bank of Russia's regulations are not
complied with, the Bank of Russia may
require that a credit institution shall limit
the amount of compensations and (or)
incentive payments to credit institution
employees for up to three years.
Under the Law, BoD member competence
includes approval of HR policy for a credit
institution.
The Law shall come in effect 2 October 2013, except for certain provisions coming in effect 1 January
2014 and 1 January 2015.
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