The key piece of legislation governing Russian Banking Law is Federal Law No. 395-1, otherwise known as On Banks and Banking Activities, which came into effect in 1990. Federal Law No. 86-FZ, otherwise known as On the Central Bank of the Russian Federation, came into effect in 2002 and sets out key terms governing the Central Bank of the Russian Federation (the CBR). Federal Law No. 40-FZ, otherwise known as On Insolvency (Bankruptcy of Credit Organizations), came into force in 1999 and governs insolvency pertaining to banks.
Following is more information about the Russian banking system and Russian banking law.
The Russian banking system
The CBR acts as the chief watchdog of the banking industry in Russia. The National Banking Council, formed under the auspices of the CBR, controls the CBR’s board of directors and engages in policy-making activities.
The CBR takes on the responsibility of supervising the circulation of monetary funds and monitoring Russia’s currency, the Russian ruble. It is also in charge of the state reserves, formulates rules pertaining to the licensing and registration of banks and other financial service providers and maintains control over all senior management appointments of banks and other credit organizations.
Regulation of banks and other credit organizations
Banks and other credit organizations must first obtain a banking license from the CBR before they are allowed to operate in Russia.
Foreign banks are not allowed to set up branches in Russia but are permitted to set up subsidiaries and subject to restrictions.
In addition, there are restrictions on the acquisition of Russian banks by foreign individuals or legal entities. For instance, the CBR’s approval must be obtained before a non-resident acquires 20% or more of its shares. If a non-resident acquires more than 1% but less than 20% of a Russian bank’s shares, the CBR must be informed but its approval need not be obtained.
Licensing of entities participating in banking activities
Under Russian law, any credit organization including banks must obtain a license from the CBR before it is permitted to engage in banking activities, including opening and administering bank accounts, cash servicing, exchanging foreign currencies, and issuing bank guarantees.
Several licenses exist and may be issued depending on the intended activities of the credit organization. Licenses that may be granted to new credit organizations include a license to engage in banking activities which deal with monetary funds in Russian rubles only with the attendant right to accept deposits, a license to engage in banking activities which deal with monetary funds in Russian rubles and other currencies without the attendant right to accept deposits, and a license to handle precious metals.
Registered banks in possession of a license for two years or more may be granted additional licenses including a license to accept deposits in Russian rubles, a license to accept deposits in Russian rubles and other currencies and a general license allowing all of the above except for the right to handle precious metals.
In addition, there are laws designed to protect banking consumers and uphold the integrity of the banking system. Federal Law No. 177-FZ, otherwise known as On Insurance of Deposits of Individuals in the Banks of the Russian Federation, which came into force in 2003, makes it compulsory for all banks to take out insurance for individual deposits in accordance with the insurance system stipulated therein.
Federal Law No. 115-FZ, otherwise known as On Combating Money Laundering and the Financing of Terrorism, imposes reporting obligations on banks and other financial institutions in respect of high value transactions.