Klimova Anna,

4th year student of Law Faculty

of the SU-HSE

Head of research: Fogelson U.B.

Thesises of the essay:

“The Principles of regulation of the Russian banking sector in comparison

with international standards”

Thebroadeningofthecommodityandservicesmarkets’ bordersledtothenecessityoftheexecutionoftheinternationalsettlementbetween the contractors all over the world. Thistendencyreflectedontherashintegrationofthestatesbankingsectorstotheinternationalfinancialmarketofthebankservicesrendering.Becauseofsuchintegrationthe executionofthebankingsupervisionineverystate needs clear and effective regulation that is determined in normative and recommendatory acts of the special international organizations. Suchorganizationinthebankingsector - theBasel Committee on Banking Supervision(hereinafter – “the Basel Committee”) – has enacted the act named “Coreprinciplesforeffectivebankingsupervision“. Inthispartoftheessaywillbecarry out the brief research on the subject of correlation between the above-said international principles and the Russian regulation of the banking sector.

The Central Bank (the Bank of Russia) (hereinafter – “the CB”) is a banking supervisory authority in Russia. However, exceptofauthoritiesofsupervisioninbankingsectortheCB regulates the monetary policy of Russia. Suchcombinationofsuch differentfunctionsinonestatebodygeneratetheideaofseparation of the banking supervision authorities from the powers of the CB[1]. Butnowthesereformsarefarfromreality.

Accordingtothearticles 3 and 56 oftheFederalLaw “OntheCentralBankofRussianFederation” the main goals of regulation and supervision executing in the banking sphere are the next:

  • Evolution, consolidation and maintaining of the banking system stability;
  • Defenseofthedepositorsandcreditors’ interests.

Letusanalyzetheobservance in Russiaofthe “Coreprinciplesforeffective banking supervision” of the Basel Committee. Forthatwe’llchoose 3 mainprinciples: transparency, financial stability and liability of the supervisory authority. Firstlylet’sdisclosetheprincipleoftransparency. Itestablishedasoneofthefirststandardsinthe “Coreprinciples” andconsistedinrequirementofthetransparentprocessesof the banking supervision (i.e., ofdecisionsmaking). AlsotheideaofthetransparencyisdisclosedinthePrinciples 19 and 21: an effective banking supervisory system requires that supervisors develop and maintain a thorough understanding of the operations of individual banks and banking groups. The supervisory authority has to inform the community about its day-to-day work.Therequirementtoinformanumberofunspecifiedpersons means for the supervisory authority not only to present the information, but also to clarify, to ground its actions (decisions). Thesimilarprincipleof“reasoned arguments” results from the standard of transparency of the banking supervision authority and will be fundamentally disclosed in the main essay.

Let us answer to the question whethertheprinciplesoftransparencyandofreasoned arguments observe in the supervision of banking activity? DespiteoftheabsenceoftheseprinciplesintheRussianlegislationtheytakeactionin Russia becauseofspecialnormsandpractice of application.ReportingoftheCBisrepresentedasinformationwith public access and presentsannually to the State Duma of RF (including the official publication on the CB e-page) ( chapter 5 of the Federal Law “On the CB of RF”). Alsointhearticle 77 ofabove-saidFederalLawisestablishedadutyoftheCBtogivetheanswersontherequestsofcreditinstitutionsinthelimitedterm– during a months – and to hold consultations with business entities on the most important subjects. Butthesituationwiththeobservanceoftheprincipleofreasonedargumentsismoredifficult – inmanynormsoftheFederalLaw “Onbanksandbankingactivity” is establishedthatinthecaseofadoption of negative for the credit organization decisionsupervision authority has to motivate it (i.e. under the article 16 the CB has to motivate the refusal in registration of credit organization or refusal in the grant of license). ButthepastpracticeoftheCBitjustshortlypointedthecauseoftherefusal, didn't ground the motives of the refusal, didn’t disclose the circumstances that had influence on the refusal. NowtheCBslowly beginstoapply in practice the Basel principle of reasoned decision, but insufficiently. Therealapplicationoftheprinciplewillallowavoidinginmanycasesofbringingsuitsby means of which credit organizations are trying to protest unmotivated decisions of the CB.

Theprincipleoffinancialstability of the supervision authorityisthenextofthecoreBaselprinciples.Itisfirmlyconnectedtotheprincipleofindependenceofthebankingsupervisionbodywith no financial resources there will be no opportunity to performthe supervisionОнкрепкосвязанспринципомнезависимостиорганабанковскогонадзора, ведьбезналичиясредстнебудетвозможностиосуществлятьдеятельностьпонадзорувбанковскойсфере (принцип 1 Основныхпринципов). IncompliancewiththeFederalLaw “OntheCB” theCBhasregisteredcapitalin amount of 3 billion rubles (article 10) and also it has a right to make profit from the banking operations and bargains connected with the performance of the CB functions (article 11). Thearticle 2 ofthelawalsodeclaredthenextnorm: “TheBankofRussiaundertakes the expenses for account of its own income”. Intheconclusionofanalysisoftheselegalnormscanbesaidaboutobservanceofthefinancialstabilityprinciplein regards of the CB. But theremustbementionedthatsuchobservanceispossibleonlybecausetheCBhasotherthanbankingsupervisionauthoritieswhich at largeprovide its income.

ThelastofdiscussedBaselprinciples is the principle of supervision authority liability (core principle 1). Itconsistsinthefactthattheefficiencyofthebankingsupervision directly depends on the reality of the liability of the authority. Atthatthebankingsupervisorybodyhastobearmaterialresponsibilityfor its violations of the norms.InspiteofthedeclaredintheRussianlegislationnormsthatallownotonlytochallengeactions (inaction) oftheCB, butalso to apply sanctions to the officials that are liable for the violations. Inmany casestheprincipleoftheliabilityisobservedbythestatedproceduresofthedecision-making, determinedfoundationsforeverykindofdecision and right to challenge illegal in business entity’s opinion decision (by administrate procedure or by the court proceeding). ButalsosomedecisionsoftheCBgiverisetoitscriticismfrom business entities because of the absence of motivation in the decisions.Thesituationcanbechangedbythemoreeffectiveapplication of the reasoned arguments principle by the CB.

InternationalcoreprinciplesoftheBaselcommitteealready are reflected in the Russian legal system, although they are stated not directly but impliedly in the norms. Butinpracticetheseprinciplesoftenarenotapplied. That’swhythecorrectivesinthesystemofbankingsupervisionarenecessaryforthepurposeofrealobservanceinRussiaoftheBasel requirements. Proposalsonsuchamendmentswillbeexaminedintheresultingessay.

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[1]ProposalstoseparatebankingsectorsupervisionfromtheauthoritiesoftheCBandtopassittothespecialpurposefederalbodyemergedsomeyearsagoandwereconfirmedintheDecisionofRussianGovernmentin 2006. NowadaysintheStateDumaofRussianFederationisdiscussedthelegislationofcreationaspecialregulationbody – self-regulatingorganization (with participation of the state and business entities that operates on the financial markets)thatwillhaveansupervisionauthorityonallfinancialmarkets. Butnoteverybodysupportsthisideabecauseofthelackofevidentiary support of the efficiency of such organization.