IMF and World Bank experts have assessed the effectiveness of Bank of Russia’s measures to stabilize the financial system
IMF and World Bank experts have finalised the results of the Financial Sector Assessment Program (FSAP) in 2015/2016, the biggest-ever such program in the history of the Russian Federation.
Regarding the assessment results for the Russian financial sector and the quality of its regulation, the FSAP mission, consisting of experts of the International Monetary Fund (IMF) and the World Bank, notes a successful implementation by the Bank of Russia of recommendations provided during the previous assessment in 2011, as well as the effectiveness of measures taken by the Bank of Russia to stabilize the financial system during periods of financial and economic turmoil.
The Mission states in the published FSAP reports that the establishment of a mega-regulator, on the whole, significantly improved regulation and supervision of the Russian securities market, insurance sector, and also financial inclusion.
The Mission considers the institutional mechanism for macroprudential policy and financial stability to be efficient.
The Mission recommends that the Bank of Russia continue to encourage interbank market development and that it consider additional changes in its main monetary policy operations to deal with a liquidity surplus, as well as improvements in approaches to the assessment of collateral quality in the central bank’s operations.
The Mission observed significant progress in the development of credit institutions’ stress testing, and notes that the Bank of Russia successfully passed the assessment of the quality of its stress testing.
Another important output of the program was an assessment of banking regulation and supervision for compliance with Basel Core Principles for Effective Banking Supervision (BCP) issued by the Basel Committee on Banking Supervision in September 2012. The Russian Federation received assessments of ‘largely compliant’ or higher on 25 out of 29 principles.
The Mission welcomes the considerable progress made in expanding the Central Bank’s powers to supervise banks and banking groups.
The Mission emphasised the effectiveness of the approaches used for bank resolution and of the measures of the Bank of Russia has taken to improve them.
The Mission’s assessment of the compliance of Russian regulation with the IOSCO Objectives and Principles of Securities Regulation found significant progress in introducing these international standards.
The number of fully introduced principles had markedly increased – from 2 to 10 – from the previous assessment, and the legislation on credit rating agencies is compliant with global best practices. The Mission considers that the number of IOSCO principles implemented to a greater or lesser extent in the Russian jurisdiction remains at 28. The Mission experts are positive in their final report both about the ‘Guidelines for the Development of the Russian Financial Market in 2016–2018,’ about joining the IOSCO Multilateral Memorandum, and about the development of self-regulatory institutions in the financial market.
For the first time, the Mission has assessed the Russian insurance sector for compliance with the Insurance Core Principles, Standards, Guidance and Assessment Methodology of the International Association of Insurance Supervisors. The experts found that 24 out of 26 principles have been introduced to a greater or lesser extent, with five of them found to be observed, eight of them largely observed, eleven of them partly observed. Alongside a high assessment of Russian legislation and enforcement practices, the Mission experts noted the appropriateness of the Bank of Russia’s changeover from primarily rules-based to principles-based regulation, as well as to the use of a risk-based approach to solvency assessment.
The Mission found that the Central Bank had successfully ensured financial institutions’ compliance with Bank of Russia regulations on countering the laundering of criminally obtained incomes and the financing of terrorism (AML/CTF). They recommend more frequent use of the risk-based approach and improvement of mechanisms to apply sanctions for AML/CTF violations.
The Mission experts are positive about the implementation in Bank of Russia regulations of the international IOSCO-CPMI Principles for Financial Market Infrastructures regarding all Russian FMIs.
They highly appreciate the development of the Russian FMIs, including systemically important payment systems, the central securities depository, central counterparty and repository.
The Mission also mentions strong performance regarding the establishment and development of the operational payment clearing centre of the National Payment Card System in the Russian Federation for processing domestic transactions for cards issued by international payment systems, and regarding the establishment and fast development of Mir payment system, where transactions are made using national payment instruments.
The Mission conducted the first ever assessment of financial inclusion in the Russian Federation, noting the positive development of financial inclusion in terms of certain key performance indicators. For instance, the share of individuals who have accounts with financial institutions (67.4%) is comparable with the regional average in Europe and Central Asia.
The Bank of Russia has taken steps to implement the key recommendations of the assessment and to prepare for the next programme steps in 2021.
For detailed information on the assessment results, please refer to the following IMF and World Bank publications below:
1. Report on Article 4 AIV (IMF).
2. Report on the Russian Federation (FSSA) (IMF).
3. Financial Sector Assessment: RUSSIAN FEDERATION (FSA) (World Bank).
4. ROSC BCP (short version) (IMF/World Bank).
6. ROSC IOSCO (short version) (IMF).
7. DAR IOSCO (IMF).
9. Technical Note - AML/CFT (IMF).
10. Technical Note – Macroprudential Policy (IMF).
11. Technical Note - Bank Resolution and Crisis Management Framework (IMF).
12. Technical Note - Role of State in Financial Services (World Bank).
13. Technical Note - Financial Inclusion (World Bank).
14. Technical Note – Financial Infrastructure (World Bank).
15. Technical Note - Stress Testing (IMF).
16. Insurance Sector. Technical Note (World Bank).
