Regulator introduces rules for sale of investment products through banks
Banks will be required to inform their clients about the specifics and risks of investment products, as well as that returns on them are not guaranteed and investments are not insured by the state deposit insurance system. These requirements are established by the Bank of Russia Ordinance.
They relate to securities, financial derivatives, investment-linked insurance policies, and individual pension plans.
The fundamental innovation introduced by the regulator is that the information communicated by bank employees to their clients must strictly correspond to that provided to them in writing. The reason being is that most often people are exposed to misselling — the substitution of one financial product for another — in banks’ offices, when they are verbally assured that an investment life insurance or another complex product is supposedly as reliable as a deposit and even more profitable.
The regulator’s authority to establish the rules for banks to sell non-bank products is stipulated in the law adopted in the summer of 2021. The Bank of Russia will have the right to issue orders to suspend the sales of financial products if a bank repeatedly violates the rules for informing clients about them. In special cases, the regulator may require the bank to buy back such products from those clients who want to sell them at the purchase price.
The rules take into account the requirements of the basic standards for the protection of the rights and interests of clients of non-bank financial institutions (NFIs), thereby setting similar requirements for NFIs and banks.
The Ordinance will come into force on 1 July 2022.