21 Nov 2019 12:37

CBR making "controlled purchases" at banks

MOSCOW. Nov 21 (Interfax) - The Central Bank of Russia (CBR) has made use of its right to make "controlled purchases" at banks, and 16 such control measures have been carried out since the beginning of this year by decision of the CBR's Current Bank Oversight Service (CBOS), CBOS head Bogdan Shablya said in an interview with Interfax.

Amendments that expanded the regulator's powers went into effect at the beginning of 2019. CBR employees, with the permission of the CBR governor or deputy governor, can now carry out control measures at a bank without warning it and in the presence of two witnesses, as well as using video or photo cameras. The CBR can thus check banks' compliance with procedures for opening deposits, bookkeeping, and making entries into the registry of opened accounts.

Control measures are conducted at the request of various oversight departments. The CBOS, for example, had filed 17 decisions to conduct control measures as of November 1, 16 of which had been completed.

"For important types of measures we have developed checklists that specify the procedure for conducting the measures, what to pay attention to, what to ask, find out, what documents to obtain and what circumstances must be reported. By and large, this is not so much a way to identify problems, because often we either know about them for certain or suspect with a high degree of certainty, but a chance to obtain legal proof of violations that credit institutions previously hid quite successfully," Shablya said.

A target for inspection is selected if a bank's activities can cause harm to its creditors and depositors or create a threat to their legal interests, as well as if there are signs of violations of the law and the CBR's regulations or signs that the bank is violating clients' rights.

"Using the mechanism of controlled purchases, the Bank of Russia can identify violations of depositors' rights and take action in a timely manner. It's important to note that conducting control measures does not replace conducting inspection audits of banks," Shablya said.

The security departments of the CBR's regional divisions make "controlled purchases" at the request of oversight departments both by visiting a bank location and remotely. "There is, for example, the control measure of opening a deposit, where employees come [to a bank] who know precisely what they need to ask, what to pay attention to. When opening the deposit, do they propose to them to just bring it into an office or recommend not putting the deposit in this bank and redirect to another organization? In other words, in the course of the control measure our employee goes like a regular depositor and dives into this whole atmosphere," Shablya said.

"This is already not the artificial picture that they sometimes try to show us, but real life. And when, for example, he makes such a deposit, we can then check in real time by the balance sheet whether this deposit appeared in the accounts - this is what's important, it concerns the issue of off-book deposits," Shablya said.

He said the CBR has not yet found violations in the course of the controlled purchases it has done. "But there is such a concept in jurisprudence as general prevention. Now, when banks know that we have such a tool, it seems to me they've become far more circumspect," Shablya said.

The CBR is still keeping a close eye out for banks using schemes to attract deposits without entering them into their books, although the last case of off-book deposits was reported in the first half of 2018.