A bill* which would regulate leasing companies that receive or are in line to receive state support, or are under state control, is currently before the State Duma. Submitted by the government in November 2018, the bill is the continuation of a three-year discussion on the need to regulate the leasing services market, but the regulations it proposes are limited in scope and only pertain to specified leasing companies.
Leasing special entities
The main innovation of the bill is the creation of a separate category of leasing company, known as “leasing special entities”, which include:
- leasing companies that are applying for approval or have access to state support for leasing activities;
- legal entities in which the Russian Federation, a Russian region or municipality (or persons affiliated with them) hold charter capital exceeding 50%;
- legal entities affiliated with credit organisations in which the Bank of Russia or the Deposit Insurance Agency hold charter capital; and
Leasing special entities (with the exception of banks) will become a kind of non-credit financial organisation, and special regulations will apply to them. As for the other types of leasing companies (including foreign companies), the bill is not likely to limit their engagement in leasing, and their activities will not depend on the fulfilment of the requirements specified below.
Register and SRO membership
The right of leasing special entities to engage in leasing activities will begin when they are entered in a register for leasing special entities. The maintenance of the register and the decision to include an organisation in the register will be the responsibility of the Bank of Russia. In addition, leasing special entities will be required to join the relevant self-regulatory organisation (once this body is created).
For leasing special entities (with the exception of banks as described below), the following requirements for minimum capital include:
- for a leasing special entity whose assets have a book value of RUB 500m (EUR 6.6m) or more: RUB 70m (EUR 925,000);
- for a leasing special entity whose assets have a book value of less than RUB 500m (EUR 6.6m): RUB 20m (EUR 264,000); and
- for a leasing group (i.e. a group of leasing special entities (with the exception of banks) whose parent organisation holds more than 50% of the voting shares in other members of the group due to direct participation in their charter capital): RUB 70m (EUR 925,000).
Supervision and other requirements for leasing special entities
The Bank of Russia will be the supervising authority. The bill also provides for the regular submission of financial statements (and mandatory audits) to the Bank of Russia, compliance with certain standards of internal control and risk management, and the application of certain requirements of the anti-money laundering law.
In addition, leasing special entities that are not banks will be unable to combine leasing activities with the activities of credit and non-credit financial organisations.
Leasing activities of banks
Regarding the regulation of leasing activities of banks: in its current version, the law on banks and banking activities indicates that, in addition to banking operations, any credit organisation can carry out leasing operations. The bill will repeal this and introduce a specific provision stating that only banks can carry out leasing activities. Hence, if the current draft of the bill is adopted, in our opinion it will in fact limit the ability of non-banking credit organisations to engage in leasing.
In addition, all banks will automatically fall into the category of leasing special entities. This may mean that they will not be able to carry out leasing operations until they are included in the register of leasing special entities. However, most of the requirements for leasing special entities do not apply to them, which can be considered reasonable, given that banks are already supervised by the Bank of Russia and comply with a large number of special requirements for capital, activities and reporting.
The main purpose of the bill is to protect the interests of the state, which will provide state support only to verified leasing special entities supervised by the Bank of Russia (including banks supported by the Deposit Insurance Agency). At the same time, the bill will actually have wide coverage: according to the bill’s explanatory note, companies deemed leasing special entities will own from 50% to 70% of the assets of the leasing market in Russia. In addition, other participants in the leasing market may be included in the register of leasing special entities (e.g. for reputational reasons) and fulfil the relevant requirements on a voluntary basis.
The current version of the bill is the first draft, which was submitted to the State Duma for consideration and is subject to further discussion.
Expected amendments to the Russian Civil Code on leasing
Another bill is under discussion, which amends the Civil Code of the Russian Federation regarding the regulation of leasing contracts.
The proposed amendments are aimed at resolving the most problematic issues related to leasing agreements, including safeguarding the claims of the lessor, the suspension of the use of the leased asset, the consequences of early termination of the agreement and the sale of leased property.
However, many of these issues are still not fully addressed, and a number of important problems are not reflected in the bill, such as pledging of leased property.
It is likely that this bill will be amended, and its existing shortcomings will be eliminated even before it is submitted to the State Duma.