Bank of Russia approves procedure for testing non-qualified investors

The testing rules have been developed together with the self-regulatory organisations National Association of Securities Market Participants and National Finance Association and approved by the Committee for Brokerage Standards at the Bank of Russia.

The test comprises two blocks of tasks. The first one, ‘Self-assessment’, contains three questions to determine the investor’s experience and the source of his or her knowledge. Answers to these questions will not influence testing results but they will help the investor better assess whether he or she is prepared to conclude deals.

The second block, ‘Knowledge’, contains four questions about the specifics and risks of the instruments included in the groups which are subject to testing pursuant to the law:

1) unsecured margin transactions;

2) financial derivatives;

3) repo transactions;

4) structured bonds;

5) units of closed-end unit investment funds;

6) bonds of Russian issuers without a credit rating or with a credit rating below the level established by the Bank of Russia;

7) bonds of Russian subsidiaries of foreign issuers without a credit rating or with a credit rating below the level established by the Bank of Russia;

8) structured income bonds meeting the requirements set by the Bank of Russia for the credit rating level;

9) unlisted shares;

10) foreign shares not included in indices from the list approved by the Bank of Russia;

11) foreign ETFs, including sponsored ETFs, where the yield is determined in accordance with an index not included in the list established by the Bank of Russia.

Testing will be mandatory from 1 October 2021 (for purchasing structured income bonds, from 1 September). For unsponsored ETFs, it will be mandatory from 1 April 2022, when they are admitted to the Russian market.

Testing will not be required if the client concludes at least one such agreement or enters in at least one deal of the same kind before 1 October 2021 (according to the law, a non-qualified investor may purchase complex financial instruments before the start of testing provided that he/she had similar deals before 1 January 2020). It is assumed that such an investor is already experienced enough, has the required knowledge, and can assume high risks, if he or she wishes to do so.

‘It will be necessary to pass the test only once for each broker when entering into the first deal with a specific class of financial instruments unless the agreement provides otherwise,’ notes Head of the Bank of Russia Service for Consumer Protection and Financial Inclusion Mikhail Mamuta. ‘It is worth spending thirty minutes for the first time not to be disappointed by the results of investing and potential financial losses. If an investor fails the test, he or she should think again whether to buy the instrument if its risks are unclear to them yet or whether he or she should first obtain the necessary knowledge and experience while trading with simpler financial products. Nonetheless, even with the negative test result, the client retains ‘the right to the last word’. This right allows the client to buy any instrument subject to a special notice on assuming risks and their consequences. In this case, the amount may not exceed 100,000 rubles per deal (or the cost of one lot of securities or one security if this cost exceeds 100,000 rubles). This mechanism will help a novice investor limit the amount of possible losses due to the lack of understanding of risks.’

Testing is free of charge and can be taken multiple times without restriction.