Russian c-bank outlines requirements for selling financial products

The Central Bank of Russia has sent a Letter to financial services providers informing of new requirements regarding the sale of financial products to clients of non-credit financial organizations (NFOs), a group which, inter alia, includes securities market participants like brokers and dealers.

The letter, signed by the Central Bank of Russia’s Governor, Elvira Nabiullina, recommends using special scripts when selling financial products. The Central Bank explains that self-regulatory organizations (SROs) will be responsible for drafting these scripts.

When working on these scripts, the SROs will have to take into account the principles for providing detailed information to the client about the risks and specific characteristics of a given product. There must be no “push” selling approaches when offering such products. The sellers will also have to determine the timing details of a contract, the conditions for its termination, as well as all terms for getting one’s money back.

There must be a different selling scenario for each product with specific characteristics. A financial services company may draft a proposal for a scenario too but this proposal will have to be approved by an SRO.

The aim of the recommendations is to protect investors. Preventing any misleading of customers of financial services firms will help improve confidence in the sector.

Let’s recall that, in the face of the existing Forex law in Russia, the number of illicit FX schemes is substantial. The Central Bank of Russia identified 208 illegal Forex brokers in the first half of 2018, according to Valery Lyakh, Head of the Bank of Russia’s Department for Countering Malpractice. The list of these 208 entities includes foreign Forex brokers that illegally target Russian clients, as well as Russia-based companies which operate without the necessary FX dealer licenses, as required by the Russian law.

There are only eight companies that are currently licensed to operate as FX dealers in Russia. The small number is partially explained by the tough requirements for obtaining a license from the central bank. Another reason is the lack of a simplified procedure for client identification. The bill proposing such a simplified procedure, however, was withdrawn by its authors earlier in November. The Central Bank said that the proposal was premature, whereas the Government’s objections centred around AML requirements.