State Duma adopts law on opening branches of foreign banks in Russia
MOSCOW. July 31 (Interfax) - The State Duma has adopted in the third reading a law to permit foreign banks to open branches in Russia.
The government submitted the relevant document No. 676816-8 to the State Duma on July 19.
Specifically, a foreign bank is permitted to open only one branch in the Russian Federation, which must be fully named in Russian, and no more than half of the branch's employees may be foreign citizens. The respective branches must comply with Russian laws regarding anti-sanction policy.
The bill stipulates that the branch of a foreign bank must create and operate an official website in the Russian national domain zone. A respective foreign bank must also have possessed a permit to conduct banking activities in its home country for at least three years and have a credit rating at least at the level established by the board of directors of the Central the CBR in order to operate in Russia. The regulator will publish credit rating levels on its official website.
SPECIAL REPRESENTATIVE AND COMPLIANCE WITH ANTI-SANCTIONS REGULATIONS
The adopted amendments establish that the CBR will have the right to appoint its representatives to the branches of foreign banks. The representatives will be permitted to participate in meetings that concern the management of the branch; receive documents and information from the branch about its banking activities; as well as request information about the transactions and operations that the branch conducts.
An amendment to the law on counteracting sanctions stipulates that the branches of foreign banks must comply with the same rules of interaction with foreign authorities as Russian banks. Additionally, it has been decided to extend the anti-sanction law to branches of any foreign legal entities. "Implementing action (counteraction) measures is also mandatory for the branches of foreign legal entities through which the foreign legal entities conduct activities on the territory of the Russian Federation," the amendment stipulates. This involves to the provisions of Federal Law No. 127 "On action (counteraction) measures against the unfriendly actions of the United States of America and other foreign states", as adopted in 2018.
The branch of a foreign bank must not open internal structural divisions or engage bank payment agents and/or subagents. The branch and its structural divisions must be located at premises at only one single address. The CBR will be permitted to establish standards for capital leverage and other financial risks for foreign banks.
GENERAL PROVISIONS
A foreign bank, through its branch, will not have the right to conduct banking operations and transactions with individuals, including those registered as individual entrepreneurs. The exception is transfers of funds without opening bank accounts and the purchase and sale of foreign currency in cash and non-cash. Moreover, it is possible to transfer funds in non-cash form only without opening bank accounts, including electronic money.
In summary, taking into account the implemented restrictions, the branch of a foreign bank will be permitted to open and maintain bank accounts for legal entities; transfer funds on behalf of legal entities, including correspondent banks; collect cash, bills of exchange, payment and settlement documents, and provide cash services to legal entities; act as a guarantor and surety for third parties; lease to legal entities special premises and safes for storing documents and valuables; conduct leasing operations; provide consulting and information services; and issue bank guarantees.
"A foreign bank, through its branch established on the territory of the Russian Federation, is prohibited from engaging in production, trade and insurance activities," the adopted law also stipulates. The restriction does not apply to a number of cases, namely the conclusion of contracts that are derivative financial instruments with an underlying asset in the form of goods; the sale of property acquired by a foreign bank through its branch in Russia to ensure its activities; and the sale of property in the event of foreclosure on the subject of collateral owing to the debtor's failure to fulfill an obligation.
A foreign bank, through its branch in Russia, may engage in professional activities in the securities market in accordance with Russian laws, with the exception of managing securities and funds for the execution of transactions with derivative financial instruments.
SECURITY DEPOSIT
The rules for forming a security deposit of the branch of a foreign bank stipulate that the minimum amount must be equal to the minimum amount of the charter capital of a bank with a universal license, specifically 1 billion rubles, to which the security deposit settlement must be added. The CBR will establish the methodology for determining the security deposit settlement.
The deposit must be in a correspondent account in rubles opened with the CBR. These could also be investments in federal loan bonds or securities issued by the CBR to implement monetary policy.
The adopted law specifies instances when the CBR may demand an increase in the deposit. If the branch of a foreign bank fails to comply in a timely manner with the CBR's requirements to eliminate violations of the law on combating money laundering, or if the violations threaten the interests of creditors, then the CBR may impose a fine up to 1% of the branch's security deposit, though not less than 1 million rubles. Additionally, the CBR has the right to demand the replacement of specific bank employees, limit their bonus payments for up to three years, or suspend operations if the branch of a foreign bank is violating anti-money laundering legislation.
The law enters into force on September 1, 2024.