Welcome to the most recent issue of our Russian Legislation Update, covering the period of November 2016 - January 2017.

In this issue…

Corporate Relations

Anti-Corruption Practices

Banking

Procurement

Corporate and secured financing

On 28 December 2016, the President signed Federal Law No. 471-FZ amending a number of legal acts.

In particular, under the amendments, the following information shall be included in the Unified Federal Register of Data on Certain Facts of Activity of Companies (www.fedresurs.ru):

  • Information on issuance of independent guarantees (with the exception for bank guarantees);
  • information on clients' entering into factoring agreements (including the date and parties to an agreement), other than information that constitutes state, commercial and other legally protected secrets (i.e., from now on, the information has to be disclosed by clients and not financial agents as was envisaged before; the scope of the data subject to disclosure was narrowed—in particular, it is no longer necessary to disclose the value of the assigned claims, and an exception for secret information was added).

In addition, the amendments abolished statutory provisions regulating the issuance and maintenance of so-called universal electronic cards. Therefore, a universal electronic card previously intended as a tool for providing state and municipal services to individuals was abolished.

The Law entered into force on 29 December 2016 (save for some provisions which entered into force on 1 January 2017).

On 28 December 2016, the President signed Federal Law No. 488-FZ amending certain Russian legislative acts.

Among other things, the amendments adjust the Law on the Sate Registration of Legal Entities and Individual Entrepreneurs (the "Registration Law") in accordance with Constitutional Court Resolution No. 10-P dated 18 May 2015, and establish that the Federal Tax Service may no longer resolve the exclusion of a company from the Unified State Register of Legal Entities (the "EGRUL") if it is aware that such company is under the bankruptcy proceedings.

According to the amendments made to the LLC Law, the creditor of the LLC may require that the LLC's CEO, members of the LLC's collective body and persons in a position to decide on the LLC's activities (Article 53.1 of the Civil Code) bear the subsidiary liability for the LLC's obligations to the creditor if the Federal Tax Service has excluded the LLC from the EGRUL as a non-operating company, and the LLC has failed to perform its obligations to the creditor due to such persons' bad faith or injudicious actions.

Also pursuant to the amendments, the LLC's liquidation term, as a general rule, may not exceed one year but the court may prolong it for six months maximum.

The Law will enter into force on 28 June 2017 (save for certain provisions which will enter into force on other dates).

On 28 December 2016, the Ministry of Justice adopted Order No. 323 "On Approving the Procedure for Interaction of the Federal Notary Chamber and Notaries in Connection With Registration of Notices of Pledge of Movable Property."

The Order was registered with the Ministry of Justice on 30 December 2016.

As of 1 January 2017, if a notice of pledge is sent in electronic (and not paper) form, it should be sent to the Federal Notary Chamber (FNС) rather than a particular notary; the FNС, in turn, will send it to the notary who first expresses his/her readiness to register the notice immediately.

Based on the Order, the notice of pledge must be registered by the notary no later than within one hour after he/she receives the notice (otherwise, the notice shall be again placed as the first one in the line of notices for registration).

The Order entered into force on 10 January 2017.

Anti-corruption

On 28 December 2016, the President signed Federal Law No. 505-FZ amending a number of legal acts, including Federal Law No. 79-FZ setting forth a ban for certain individuals to hold bank accounts abroad and own foreign financial instruments.

Law No. 79-FZ establishes a ban for a number of public officials to open and hold bank accounts (deposits), store cash and valuables in overseas banks, as well as own and use foreign financial instruments. As a rule, the ban also extends to spouses and minors of those officials.

The amendments introduce a definition of foreign financial instruments. In brief, they include: 1) securities and derivatives issued by non-residents, as well as equity interests in non-residents' charter capitals, 2) foreign law-governed trust management of assets settled or benefited from by the above persons, and 3) loan and credit agreements with non-residents.

Therefore, certain officials are not allowed not only to own foreign securities but also to attract loans from foreign parties.

The ban for ownership and use of foreign financial instruments means a ban for both direct and indirect (through third parties) ownership and use.

The Law will enter into force on 28 June 2017.

Banking

Mandatory ratios

On 17 November 2016, the Bank of Russia issued Directives No. 4203-U "On Signs of a Potential Relation of a Person (Persons) with a Credit Organization" and No. 4205-U "On the Procedure for the Banking Supervision Committee of the Bank of Russia Taking a Decision on Recognizing a Person as a Related Party of a Credit Organization […]".

The Directives were registered with the Ministry of Justice on 30 December 2016.

As of 1 January 2017, a new mandatory ratio (N25) applies: a maximum permitted exposure to related parties (group of related parties) of a bank, which may not exceed 20 percent of a bank's capital.

Directive No. 4203-U specifies signs of a potential relation of a person (persons) with a bank. Those signs include, for example, the following: a bank has powers to manage a person's business; the risks incurred by a bank under the transactions with a person largely exceed the risks incurred by third parties dealing with that person; transactions between a bank and a person are made at a non-market value and largely affect the amount of the bank's capital and compliance with mandatory ratios.

Directive No. 4205-U provides for the procedure under which the Banking Supervision Committee of the Bank of Russia decides to recognize a person as a related party of a bank based on a reasoned opinion, if it finds one of the signs of a potential relation. If so decided, the bank may be required to bring the maximum exposure to the related party in compliance with the value set by the Bank of Russia.

The Directives entered into force on 1 January 2017.

On 15 November 2016, the Bank of Russia issued Directive No. 4195-U amending Instruction No. 139-I "On Mandatory Economic Ratios for Banks."

The Directive was registered with the Ministry of Justice on 22 December 2016.

As noted above, as of 1 January 2017, the ratio of a maximum permitted exposure to related parties (group of related parties) of a bank applies.

The Directive amends the criteria for determining relation of parties with a bank; i.e., it excludes the criterion of "economic" relation. It also provides for decreased risk coefficients in relation to certain related parties (e.g., strategic companies or companies having a certain credit rating) in 2017 and 2018.

The Directive entered into force on 26 December 2016.

Mandatory reserves

On 25 November 2016, the Bank of Russia issued Directive No. 4217-U amending its Regulation No. 507-P "On Mandatory Reserves of Credit Organizations."

The Directive was registered with the Ministry of Justice on 22 December 2016.

Under the amendments, the "liabilities to non-resident legal entities" and "other liabilities," for which banks must deposit reserves with the Bank of Russia, shall include a separate sub-category of "long-term liabilities," i.e., liabilities to legal entities for no less than three years.

The reserves shall not be deposited for: 1) liabilities under subordinated instruments that meet the established criteria, and 2) liabilities related to the raising of funds for no less than three years through a bond offering, provided no early repayment is envisaged.

The Directive entered into force on 1 January 2017.

Note: the mandatory reserves ratios established with respect to the long-term liabilities (please see Directive of the Bank of Russia No. 4253-U of 27 December 2016) are the same as the ratios set for the relevant non-long-term liabilities.

Procurement

On 28 December 2016, the President signed Federal Law No. 474-FZ amending procurement laws.

Starting from 1 January 2017, as a general rule, state and municipal unitary enterprises shall procure goods, works and services in accordance with Federal Law No. 44-FZ "On the Contractual System for Procurement of Goods, Works and Services for State and Municipal Needs," rather than in accordance with Law No. 223-FZ "On Procurement of Goods, Works and Services for Certain Types of Legal Entities," as before.

According to the amendments, federal state unitary enterprises which have significant importance for securing rights and legal interests of Russian citizens, and the defense and security of the state and are included in the list approved by the Government (see Decree No. 2931-r of 31 December 2016), shall procure goods, works and services in accordance with Federal Law No. 223-FZ.

The Law entered into force on 1 January 2017.