The Federal Law No. 146-FZ “On Introducing Amendments to Certain Legislative Acts of the Russian Federation” (hereinafter referred to as the “FZ-146”) was adopted on July 2, 2013. Under the law, certain amendments were introduced to a number of regulatory documents governing banking activity in Russia, principally the Federal Law “On Banks and Bank Activity” dated December 2, 1990 No. 395-1 (hereinafter referred to as the “Bank Law”) and the Federal Law “On the Central Bank of the Russian Federation (Bank of Russia)” dated July 10, 2002 No. 86-FZ (hereinafter referred to as the “Bank of Russia Law”). The legislative innovations apply to many aspects of bank activity, principally the corporate ones. The following is a short analysis of the innovations:
1.The definitions of “Banking Group” and “Bank Holding Company” were changed
Under the FZ-146, changes were introduced to the definitions of the terms “Banking Group” and “Bank Holding Company”. Once the FZ-146 comes into effect, a banking group will be defined as an informal association of legal entities wherein not all members may be the credit organizations, as opposed to the existing rule according to which only the banks may be part of a banking group. However the parent organization of such a group, as it is required by the current legislation, shall be a credit organization.
According to the FZ-146, the parent banking organization’s direct or indirect control over the other members of such a group and having significant influence on the other members of the group will be a criterion for attributing the legal entities to a banking group. This approach complies with the established international standards.
The new rules will also be used to define the term “Bank Holding Company”, i.e. an association of legal entities with a non-bank company as the parent organization, if this structure comprises a bank and a holding (parent) non-bank organization has the ability to influence the authorities of the bank organization over decision-making process, if the share of the banking activity in such a holding is not less than 40% from another activity not related to banking. Thus, the definition of “Bank Holding Company” is narrowed down to a considerable extent in comparison with the current approach.
2.Preliminary consent of the Bank of Russia to enter into transactions regarding the acquisition of shares of a credit organization
According to the FZ-146, significant changes were introduced in the monitoring of the acquisition of shares or the participation interest in banks of the Russian Federation. First of all, the most important innovation is a twofold decrease of the transaction approval threshold with the Bank of Russia regarding the acquisition of control over a Russian bank. Today, the preliminary consent of the Bank of Russia is required to acquire 20% of the capital of a Russian bank, while the new law decreases this criteria to 10%, which certainly increases the regulatory agency’s control of the capital acquisition of the Russian banking organizations.
Furthermore, the preliminary consent of the Bank of Russia is also required in case of the investor’s acquisition from 10 to 25, from 25 to 50 and more than 75% shares of a credit organization or from one-tenth to one-third, from one-third to a half and more than two-thirds of the participation interest in a credit organization (Amended Article 11 of the Bank Law and amended Article 61 of the Bank of Russia Law).
In addition, the legislative innovations extend the range of grounds for Bank of Russia’s denial of the preliminary consent to acquisition of the capital of the Russian banks. In particular, such a reason may be failure to obtain approval of the transaction which is required by Federal Law dated April 29, 2008 No. 57-FZ “On the Procedure for Foreign Investments in Commercial Companies that are of Strategic Importance for the Country’s Defense and Security”, if such transaction is related to the acquisition of more than 10% of the capital of a credit organization and (or) the acqisition of control over the shareholders (members) of a credit organization. Furthermore, a new reason for rejection of the specified transactions is “an unsatisfactory business reputation” of the applicant.
The FZ-146 introduces special requirements for the business reputation of the people who hold key positions in a credit organization, in particular, to those who perform functions of the sole executive body of such an organization and their deputies, members of the collective executive body of a bank, chief accountant of a credit organization and his deputy, head of the branch of a credit organization and a number of other positions, as well as candidates for the above-mentioned positions and, for instance, people who acquired more than 10% (or possess more than 10%) of the capital and (or) who are making a transaction with a view to establish control over the shareholders (members) of a credit organization, as well as a number of other people.
It should be noted that the Bank of Russia is now entitled to demand replacement of people who perform management functions in a credit organization, if they do not comply with the qualification and business reputation requirements set forth in the amended Article 16 of the Bank Law.
3.Competence of the Board of Directors of credit organizations
The FZ-146 extends the competence of the board of directors (supervisory board) of a credit organization by supplementing the powers of such a body provided for by the “General” Corporate Law with specific matters related to the banking sector only, e.g. management of a credit organization and a number of matters regarding bank management.
Besides, it should be noted that such matters cannot be reserved for the other management bodies. It is envisaged that the new legislative requirements will entail appropriate amendments to the constitutive documents of the banking organizations.