Vladimir Putin has approved legislation that will change the face of the Russian banking sector, allowing for the first time foreign banks to open branches in the country. This move, which comes at a delicate moment for the global economy, is important because it represents an opening towards the international market. The rules, however, are precise and well defined. Also limiting, from a certain point of view.
The measure, published on the official legal information portal of Russia, aims to regulate the entry of foreign financial institutions into the Russian market.
Foreign branches will have operational limitations
The law was conceived with the intention of encouraging the development of a system of international regulations and attract foreign investors. According to the explanatory note attached to the document, branches of foreign banks will be directed to support these specific objectives. But, their operations they will be limited compared to those of traditional banks present in the country.
For example, the new rules state that branches of foreign banks will not be able to offer a number of services commonly available at local banks. Among the prohibited activities there are:
- opening accounts for individuals and businesses;
- the management of precious metal deposits;
- the trust management service of money and assets.
Russian Law Compliance: A Must for East-Looking Branches
The new law approved by Putin establishes that Each foreign bank will be able to open only one branch in Russia. However, this is not a simple operation. The name of the branch must be fully translated into Russiana sign of the importance given to the local language and culture. But there is more: at least half of the staff must be made up of Russian citizens.
Foreign banks opening branches in Russia will have to strictly comply with the laws of the countryespecially those related to anti-sanctions policies. In addition, each branch will be required to operate an official website, which must be hosted on a domain registered in Russia.
To obtain permission to operate in Russia, foreign banks will have to demonstrate solidity and reliability. In particular, they must have operated in their home country for at least three years and have a credit rating that meets the standards established by the Central Bank of Russia. Only financial institutions that meet these requirements will be able to open a branch in Russia.
Another important aspect of the new law is the control power vested in the Central Bank of Russia. It will have the power to appoint its own representatives within the branches of foreign banks. The Central Bank representatives will have access to strategic meetings and documents relating to banking operations, as well as the ability to request detailed information on transactions.
Accreditation procedure and specific restrictions
The amendments to the law “On Banks and Banking Activities,” promoted by the Russian government, outline the procedure for accrediting branches of foreign banks. They will have to obtain a license from the Bank of Russia in order to operate. Authorized operations will include transfers of funds without opening accounts and buying and selling currency for transfers, also without opening accounts.
Foreign branches will not be able to:
- open and manage legal entity accounts;
- transfer funds on their behalf, nor offer cash or escrow services;
- provide advice or information services;
- operate in the leasing sector;
- provide spaces and safety deposit boxes for rental.
