Sanctions on NSD confirm risks of keeping currency liquidity in Russian infrastructure - Central Bank

MOSCOW. July 12 (Interfax) - The sanctions imposed on Russia's National Settlement Depository (NSD), part of Moscow Exchange Group, by the European Union confirm the significant risks to storing substantial currency liquidity within Russian financial infrastructure, the Russian Central Bank said in its Review of Financial Market Risks published on Tuesday.

"Considering the high sanctions risks, it is advisable for market players to diversify distribution of foreign currency and continue to implement measures to remove foreign currency from their balance sheets," the review said.

Following the imposition of EU and Swiss sanctions on June 3 and June 10, in addition to the securities and monetary funds in various currencies frozen in NSD accounts in Euroclear and Clearstream since March 1, the monetary funds of the Russian depositary in euros and francs were frozen in foreign correspondent banks, it said.

The NSD suspended transactions in euros and francs on clients' bank accounts in order to control the situation, while transactions in other foreign currencies continue as normal. The NSD is preparing materials to contest the EU's restrictive measures together with the Moscow Exchange, the review said.

In order to discourage foreign currency investments in Russian infrastructure, the NSD and the National Clearing Centre (NCC) instituted higher commissions on foreign currency deposits at the beginning of June, the review said. Market players have begun actively reducing the remaining balance of foreign currency funds in their accounts in the NSD and NCC.

The sanctions on the NSD have also affected settlements in other currencies, including the dollar. This could be connected to the increased length of compliance procedures in foreign correspondent banks, the review said.

The EU sanctions have had no significant effect on the NSD's ability to function as the central depositary on the Russian market, it said.