Types of illegal operations in the financial market
To be allowed to provide the majority of services in the Russian Federation, a market participant shall be licensed by the Bank of Russia and put on the relevant register kept by the regulator. If an entity fails to comply with these requirements, it is most probably acting illegally.
Fraudsters use illicit schemes to deceive people, offering high returns on investment, loans at extremely low interest rates, and other seemingly profitable deals. However, any deals with them involve financial losses.
To protect consumers and ensure fair competition, the Bank of Russia detects financial pyramids and unlicensed operations in the market. The regulator sends the information on such entities, projects, and individuals to the competent authorities and initiates measures to block access to their websites.
The Bank of Russia also publishes the List of entities with detected signs of illegal activities in the financial market to promptly notify people of the risks and prevent potential losses that might be caused by illegal operations. Besides, the data on the list are transmitted to the Know Your Customer platform so that banks could take this information into account when assessing risk profiles of their clients and counterparties of the latter.
A final legal opinion about operations of such entities is given by the competent authorities.
Please be careful and do not let anyone trick you into any illicit schemes. An organisation shall have all required documents and licences. This information can be verified in the Directory of Financial Institutions.
Use only official websites of financial institutions. Legal companies’ websites have a verification mark (a blue circle with a tick) in Russian search systems. A legal market participant’s website should contain all necessary information about the company, its licences, and the services it offers.
Types of illegal operations
A financial pyramid is a scheme to raise funds from people where investors’ returns are paid out of the money of new members enrolled into the scheme.
The liability for organising financial pyramids is stipulated by Article 14.62 of the Code of the Russian Federation on Administrative Offences and Article 172.2 or 159 of the Criminal Code of the Russian Federation.
Pyramids promise extremely high returns on investment. However, new members are often required to make a certain contribution. Pyramids are characterised by aggressive advertising through modern technologies and most popular options, such as cryptocurrency and cashback for expensive purchases. They can imitate economic games. Many such schemes are arranged only in Telegram and do not have their own websites. Another sign of a financial pyramid is its anonymity: in most cases, there is no specific information about the head of such a project or any reliable data on the organisation’s financial position.
Only credit and microfinance institutions are authorised to issue loans and microloans. All banks shall be licensed by the Bank of Russia. Microfinance organisations, credit and agricultural consumer cooperatives, housing savings cooperatives, and pawnshops shall be put on the respective registers.
Legal creditors are supervised by the Bank of Russia and must comply with the legal requirements and restrictions, including limits on outstanding debt, maximum interest rates, debt recovery, etc.
An illegal creditor is a company, an individual entrepreneur or an internet project issuing consumer loans although they are not authorised to do so according to law.
Illegal creditors act outside the legal framework and might use unlawful debt collection practices.
- Illegal companies can charge various fees or unfair fines, demand advance payments for a loan/microloan or a remuneration for a credit history check or insurance, and then disappear, having received the money.
- Illegal creditors often forge/replace documents or hinder debt repayments, as a result of which debtors might lose their pledged property.
- They might intimidate debtors.
- Illegal companies might stipulate contractual terms that differ from those promised in ads or by their representatives.
- Illegal creditors issue loans using other types of contracts, for example, sale and purchase, storage or commission agreements, etc.
Please find more details about how you can avoid a meeting with illegal creditors and what you need to do if it has still occurred.
An illegal professional securities market participant (including an illegal forex dealer) is a company providing brokerage, dealer and other financial services listed in the law ‘On the Securities Market’ without a special licence from the Bank of Russia.
- Illegal market participants offer services in the forex market, including cryptocurrency trading.
- They might urge customers to promptly increase the balance in their trading accounts and, where a customer does not have available funds, illegal market participants might insist on raising a loan to top up the trading account, e.g., in order to recover losses.
- Illegal market participants offer their help in purchasing high-yield securities through responses to inquiries on websites, phone calls, or advice in messengers.
- They might engage customers pretending to be an employer, while demanding the candidate to take a training course and start trading.
- Illegal market participants suggest crediting a customer’s funds to the user account via a transfer to the customer’s card.
- They might zero out a customer’s balance in the user account explaining this by the market situation.
They frequently assert that they have a foreign regulator’s licence. However, it is often impossible to verify this, whereas in case of any problem, a person will have to settle it in a foreign jurisdiction that allegedly registered such a company.
Please refer to the publication on the website Financial Culture to find more information on how not to be tricked by an illegal forex dealer.
Legal entities and individual entrepreneurs may use an investment platform to raise borrowings or capital from multiple investors. The Bank of Russia regulates this type of activity and keeps the register of investment platform operators.
An illegal investment platform operator is a company that raises funds pretending to provide aid to customers in using a special information system, although such an organisation was not authorised to carry out this activity by the Bank of Russia.
Illegal investment platform operators promise high returns, but investors can neither verify the existence and quality of the project that is offered to them nor track how their investments are used.
It is essential to remember that, pursuant to law, investments may only be transferred to an investment platform operator’s nominal account and not directly to the company that is raising funds or, the more so, to an individual’s account.
If you choose to invest your money in a project through a platform, please check whether the relevant organisation is on the register of investment platform operators.
Any company operating in the Russian insurance market must be licensed by the Bank of Russia. Moreover, all types of insurance require respective licences. Therefore, before signing an insurance agreement, it is critical to check whether a particular insurer has an appropriate licence. This information is available on the Bank of Russia website.
Cooperation is possible not only directly with an insurer, but also with its financial intermediaries, including insurance agents and brokers authorised by the insurer. Insurance brokers shall also be licensed by the Bank of Russia.
Illegal operations in the insurance market are carried out by a company or an individual in the insurance sector, although they do not have an insurance, reinsurance, mutual insurance or insurance brokerage licence. Such illegal operations might also be conducted by insurance agents who do not have a civil law contract with an insurer.
- Pretending to be an insurance broker, an entity might offer assistance in buying insurance policies from various insurers. However, such an entity is not licensed to act as an insurance broker. Besides, a company has no agency agreements with the insurers specified on the website.
- Such illegal entities offer compulsory motor third-party liability insurance policies ‘without payments in the case of a road accident’ at a fixed price that is notably below the market price allegedly from operating large insurers. A customer pays for such a policy transferring the money to an individual’s card.
- Insurance agents offer their assistance in purchasing compulsory motor third-party liability insurance and other insurance policies on anonymous websites posting logos and tariffs of partner companies (an anonymous intermediary).
Please refer to the website Financial Culture to find out how to identify a fraudster.
Frequently asked questions
The Bank of Russia detects illegal financial market participants by monitoring the internet, including social networks and messengers. This is done using a modern automated system. Besides, the regulator receives the information about illegal companies from people, legal market participants, representatives of various government authorities and public organisations, mass media, and others.
In addition, Bank of Russia specialists explore other information sources, including in the course of offline monitoring of operations of such projects. The Bank of Russia carries out the work aimed at detecting companies having signs of illicit activity in all Russian regions jointly with the government authorities and law enforcement agencies.
After the investigation, the Bank of Russia forwards the information on detected illicit operations to the law enforcement agencies and other competent authorities (the Federal Service for Supervision of Communications, Information Technology and Mass Media (Roskomnadzor), the Federal Antimonopoly Service of Russia, and the executive authorities).
To block illegal entities’ and financial pyramids’ internet resources (websites, online accounts in social networks and messengers) where they advertise their services, the Bank of Russia sends the relevant information to the Prosecutor General’s Office of the Russian Federation or domain name registrars. These data may be the basis for a decision to block access to such online resources.
Besides, the information on illegal companies registered as legal entities is transmitted to the Know Your Customer platform.
A company’s status can be verified in the Directory of Financial Institutions on the Bank of Russia website.
In addition, the Bank of Russia keeps the List of entities with detected signs of illegal activities in the financial market that is also available on its website. If an entity is put on this list, cooperation with it involves risks.
However, if a company is not on the list, this does not guarantee that its operations are lawful. Therefore, you may report the information about it to the Bank of Russia through the Online Reception or the form Report anonymously. The regulator will check the information and, if it finds any proofs, will include the company’s name in the said warning list and report the data to the competent authorities.
You should complain to the police either personally at any police department or online through the website of the Russian Ministry of Internal Affairs.
Report the information in a free-form application addressed to the head of the police department you have chosen.
Specify the following in your application:
- Your personal data and contacts (full name, address, phone number, and email).
- Circumstances when you started the cooperation with the entity.
- The website of the entity that has inflicted damage on you, as well as all contacts, addresses, representatives’ details, and online accounts in social networks that you know. If the website is accessible, take screenshots of it. If you have any correspondence with the company’s representatives, audio records or any other documents received from the company’s representatives, attach these files to your application.
- Full details of the accounts (bank cards) from and to which you transferred the money, as well as statements of the account (bank card), cheques and any other documents that can prove the payments.
Besides, please report the information about the pyramid or illegal entity to the Bank of Russia through the Online Reception or the form Report anonymously. These data will help the Bank of Russia in its work and make it possible to warn other people.
The Bank of Russia does not pay compensations to the victims. The regulator checks the information reported in complaints and applications and, if it finds any proofs, puts these companies’ names on the warning list and reports the relevant data to the competent authorities.