Translated material
Cleaning up the weak
The FFMS will strengthen supervision over stock market participants
The head of the Federal Financial Markets Service Oleg Vyugin promised yesterday that unified standards of prudential supervision (a set of indicators and standards) for professional stock market participants could be introduced in Russia from the beginning of next year. According to experts, as a result, small brokerage companies will most likely be forced to leave the market.According to Mr. Vyugin, last year the Federal Financial Markets Service attracted the international company Open Economy to develop uniform prudential standards. As is known, there are currently only a few regulations in force regarding compliance with basic financial indicators, which have nothing to do with assessing the risks that companies bear. Therefore, for now, the service focuses only on the analysis of reports provided by professional participants, and either conducts scheduled inspections of companies, or more closely studies their activities if it receives complaints.
It is assumed that uniform prudential standards will ensure the stability and reliability of the market as a whole. Tightening supervision over professional participants will allow the regulator to predict and prevent both the accumulation of systemic risks and cases of insolvency of individual companies. For example, the Federal Financial Markets Service plans to introduce a standard for the adequacy of own funds, with the help of which the regulator will be able to more quickly monitor the risky transactions of its wards.
Market participants note that strengthening control over the activities of companies by the Federal Financial Markets Service was inevitable; the question is how stringent the regulator’s standards will be. According to the chairman of the board of NAUFOR, Alexey Timofeev, managing the risks of professional participants will certainly increase the reliability of the entire sector. “It is quite possible that, given the current state of the market, part of the powers for prudential supervision will be transferred to self-regulatory organizations. This can be quite effective and will not look like repressive actions. I don’t think that the market is expecting a massive revocation of licenses due to non-compliance with standards,” believes Mr. Timofeev.
When developing regulations, the FFMS will focus on the standards adopted by Western regulatory bodies, however, as experts note, no matter how progressive the initiatives are, they should be correlated with the current state of the Russian market. Otherwise, this could lead to the opposite result—massive revocation of licenses and, as a consequence, panic in the market.
The Federal Financial Markets Service is also not inclined to dramatize the situation. “We act on the principle of “do no harm,” and we do not intend to squeeze the market by losing both companies and investors. The standards are still being developed, it is quite possible that some of them will be introduced gradually so that professional participants can prepare for them,” the service told the newspaper.
However, according to a representative of a large investment company, the decision of the Federal Financial Markets Service to introduce standards starting next year could cause a mini-revolution in the market, if only on the grounds that many small brokerage companies, which are now very late in submitting reports in paper form, simply physically cannot provide all information on time and correctly. In addition, according to Aleksey Panferov, Deputy Chairman of the Board of MDM Bank, “any measure providing for systemic strengthening of supervision, as a rule, involves clearing the market of weak companies that also pursue risky policies.”