Welcome to the most recent issue of our Russian Legislation Update, covering the period of June – August 2017.

In this issue… 

Corporate

Banking

Anti-Money Laundering

Information Security

 

On 29 July 2017 the President signed Federal Law No. 233-FZ amending the JSC Law and LLC Law.

The amendments to the JSC Law relate to the scope of documents and information that shareholders can request from the company depending on their stake in the company. For example, a shareholder must hold no less than 1% of shares in order to access information on major and interested party deals and the minutes of the board of directors' meetings.

The amendments also set out a number of grounds which allow the company to refuse to provide the requested documents and information. For example, the lack of a reasonable business purpose for the request (where a shareholder holds more than 1% but less than 25% of shares). In particular, the purpose cannot be considered as reasonable if a shareholder is a competitor of the company or an affiliated person of a competitor, the requested document contains confidential information and its disclosure can impair the company's commercial interests.

The amendments to the LLC Law relate to the scope of documents that may be requested by the participants in the company. In particular, any participant can request the agreements (or documents underlying unilateral deals) which are major or interested party deals. They also contain a number of grounds for refusing to provide the requested documents.

If the requested documents contain confidential information, a requesting shareholder/participant must sign a confidentiality agreement with the company before being granted access.

The Law entered into force on 30 July 2017.

On 3 April 2017 the Bank of Russia issued Directive No. 4338-U "On the Requirements to the Procedure for Sending and Form of Notices of Persons that Can Be Considered as Interested in the Company's Deals."

The Directive was registered with the Ministry of Justice on 15 June 2017.

According to the JSC Law, persons interested in the company's deals are required to notify the company of their potential interest (especially with regards to: companies under their control; companies where they hold management positions; and deals being executed or planned of which they are aware and have an interest in). The Directive sets out the requirements for the notice and the procedure for the interested person to send it to the company.

The Directive entered into force on 2 July 2017.

On 31 July 2017 the Government issued Resolution No. 913 approving rules for companies providing information on their beneficial owners at the request of authorized bodies.

According to the Anti-Money Laundering Law, companies are obliged to provide information on their beneficial owners and measures taken to identify them, at the request of tax authorities and Rosfinmonitoring (the anti-money laundering body).

According to the Resolution, a company is required to provide information on its beneficial owners within 5 business days from the date of the request. If the request is in an electronic form, the response should also be provided in an electronic form (via telecommunication channels or on an optical or digital media accompanied by a paper cover letter).

The Federal Tax Service and Rosfinmonitoring are to approve regulations that are necessary to implement the Resolution within 180 days from the date of it entering into force.

The Resolution entered into force on 18 August 2017.

Banking

On 29 July 2017 the President signed Federal Law No. 281-FZ amending a number of laws to streamline the mandatory requirements to the shareholders, management bodies and officials of financial organizations.

The Law aims to unify the requirements for managers and shareholders of various financial organizations. The requirements are based on those used for credit organizations which have been upgraded with due regard to their practical application.

Credit organizations

The amendments with respect to credit organizations are, among others, as follows:

  • The list of grounds for considering managers, members of the board of directors, the head of the internal control department and a number of other officials as incompliant with business reputation requirements has been significantly expanded. The expanded grounds include being entitled, within 10 years before the appointment (election), to give mandatory instructions to, or otherwise define actions of, a credit or other financial organization that was found bankrupt or whose license was revoked.
  • The list of grounds for finding persons acquiring more than 10% of shares/participation interests in a credit organization as incompliant with the requirements as to their business reputation has been expanded in a similar way.
  • As a rule, persons having an unsatisfactory business reputation are not allowed to hold management positions in a credit organization and acquire (hold) more than 10% of shares/participation interests in a credit organization for 10 years after the grounds for considering their business reputation unsatisfactory have arisen.
  • However, if the business reputation is unsatisfactory due to a criminal record for illegal actions at bankruptcy, premeditated or fictitious bankruptcy of a credit organization, or there was a repeated breach of the requirements as to the business reputation, such persons are not allowed to hold management positions in a credit organization and acquire (hold) more than 10% of shares/participation interests in a credit organization for an indefinite term (i.e. for life).
  • A finding of incompliance with the qualification requirements (which have also been amended) and the business reputation requirements can be appealed to a commission at the Bank of Russia.
  • The amendments also specify the list of persons which are subject to the requirements as to the business reputation and financial position in case of the acquisition of more than 10% of shares/participation interests in a credit organization by a group of persons.
  • The amendments also envisage that information regarding a request from the Bank of Russia to cure a breach shall be published on the Bank of Russia's website. Such a request is issued if no consent was obtained from the Bank of Russia for acquisition of more than 10% of shares/participation interests in a credit organization, or if non-compliance of a person holding more than 10% of shares/participation interests in a credit organization with the requirements to business reputation and financial position was detected. The restrictions on voting apply from the date of such publication (i.e. the restrictions for voting by the shares/participation interests whose acquisition was not cleared with the Bank of Russia or more than 10% of shares/participation interests, as applicable).

Other financial organizations

The amendments with respect to other financial organizations are, among others, as follows:

  • With respect to managers, members of the board of directors and a number of officials of non-credit financial organizations, such as insurance companies, non-state pension funds, management companies of investment funds and microfinance organizations, the amendments establish the requirements and set out rules that are largely similar to those for credit organizations (including the need to agree upon candidates for management positions with the Bank of Russia, the grounds for considering managers' business reputation as unsatisfactory and, therefore, for refusing their appointment (election) or their dismissal; the ban for holding management positions in several financial organizations).
  • At the same time, the grounds for considering business reputation of managers of credit and non-credit financial organizations as unsatisfactory differ by the limitation periods for the "events" which impair the business reputation: 10 years for credit organizations; and 5 years for non-credit ones (such a 5-year period is also taken into account if a person has a criminal record for illegal actions at bankruptcy, premeditated or fictitious bankruptcy of a company).
  • With respect to persons acquiring (holding) more than 10% of shares/participation interests in non-credit financial organizations the amendments set out rules that are largely similar to those established for credit organizations (in particular: the grounds for considering shareholders' business reputation as unsatisfactory; the need to agree upon acquisition of more than 10% of shares/participation interests with the Bank of Russia; and the restrictions for voting by shares/participation interests if no consent was obtained from the Bank of Russia for the acquisition, or if non-compliance of such persons with the requirements to business reputation and financial position was detected).
  • The amendments also envisage that persons holding more than 10% of shares/participation interests in non-credit financial organizations cannot be offshore companies.
  • They also require financial organizations to disclose information on persons with control or significant influence over them.

The Law will enter into force on 28 January 2018.

On 29 July 2017 the President signed Federal Law No. 267-FZ amending Federal Law No. 213 FZ of 21 July 2014, the Law on Unitary Enterprises, the Anti-Money Laundering Law and a number of other laws regarding bank accounts of strategic companies.

Russian accounts

According to Federal Law No. 213-FZ strategic companies and companies controlled by them can open bank accounts and letters of credit only in those Russian banks which meet certain criteria. This rule also applies to the acquisition by strategic companies of the securities in Russian banks.

Now similar limitations have been established for strategic federal unitary enterprises and companies controlled by them. The limitation as to the scope of banks, where the bank accounts can be held is also envisaged for state corporations, state companies and public companies. The criteria to be met by banks are to be established by the Government and, as a rule, such banks are to be included in a list published on the website of the Bank of Russia.

Overseas accounts

Strategic federal unitary enterprises (similar to strategic companies) are required to notify Rosfinmonitoring (the anti-money laundering body) on opening overseas accounts/letters of credit and acquiring the securities in foreign banks. State companies are also required to notify Rosfinmonitoring on opening overseas accounts.

In addition, the Government is entitled to set out the criteria to be met by overseas banks where: 1) strategic companies subject to Federal Law No. 213-FZ and strategic federal unitary enterprises can open bank accounts/letters of credit; and 2) state companies can open bank accounts. Eligible overseas banks are to be included in a list to be published on the website of the Ministry of Finance (before the amendments, Federal Law No. 213-FZ considered any foreign banks as eligible).

Other amendments

Crediting and debiting operations through the accounts of strategic companies, strategic federal unitary enterprises and state companies are subject to mandatory anti-money laundering control if the operation is for at least RUB 10 million (before the amendments, operations of strategic companies were subject to the mandatory control if they were for at least RUB 50 million).

The Administrative Offences Code was also amended to provide for administrative liability for the breach of the above rules (i.e. opening bank accounts in ineligible banks/by ineligible banks, failure to send the required notices to Rosfinmonitoring).

The amendments also extend the list of persons subject to Federal Law No. 213-FZ by adding other companies with state participation which are included in a list approved by the Government.

The Law entered into force on 30 July 2017, save for certain provisions entering into force later (in particular, the amendments to Federal Law No. 213-FZ and the rule on opening bank accounts for state companies with only certain banks will enter into force on 29 October 2017).

On 1 July 2017 the President signed Federal Law No. 153-FZ amending the Law on the Bank of Russia.

The Bank of Russia is entitled to interact with banks via their personal accounts on its website. A personal account is to be used by banks to: 1) receive documents from the Bank of Russia (including various requests); 2) submit reporting forms, documents and information to the Bank of Russia, and 3) exercise other rights and perform other obligations.

The Law will enter into force on 30 September 2017.

On 26 July 2017 the Bank of Russia approved Regulation No. 596-P "On the Procedure for Calculating the Structural Liquidity Ratio (Net Stable Funding Ratio) by Systemically Important Banks (Basel III)."

The Regulation was registered with the Ministry of Justice on 18 August 2017.

The Regulation has been developed to implement international standards for the assessment and regulation of liquidity risk in accordance with "Basel III: the net stable funding ratio" (October 2014).

The net stable funding ratio is defined as the amount of available stable funding relative to the amount of required stable funding. It shall be calculated by a systemically important bank, which is a parent of a banking group, on a consolidated basis (N28), and by a systemically important bank, which is not a parent of a banking group, on an individual basis (N29). The ratio shall be equal to at least 100%.

The Regulation will enter into force on 1 January 2018.

On 3 April 2017 the Bank of Russia issued Directive No. 4336-U "On Evaluation of Banks' Economic Position."

The Directive was registered with the Ministry of Justice on 19 May 2017.

The Directive represents an updated version of Directive No. 2005-U. In particular, it amends values of the indicator of major credit risks (being one of the indicators for the assessment of a bank's assets).

The Directive entered into force on 5 June 2017. The first assessment of concentration risk for banks whose assets are less than RUB 500 billion shall be performed as of 1 October 2017.

On 28 June 2017 the Bank of Russia approved Regulation No. 590-P "On the Formation of Provisions by Credit Organizations to Cover Potential Losses in Loans, Loan Indebtedness and Other Similar Indebtedness."

The Regulation was registered with the Ministry of Justice on 12 July 2017.

The Regulation represents an updated version of Regulation No. 254-P. The changes are mostly technical. The change of approach to credit ratings of Russian and foreign companies should be noted. For foreign companies a rating should be assigned by a foreign rating agency as per the international rating scale, at the level specified in the Regulation, and for Russian companies – a rating assigned by a Russian rating agency as per the national rating scale, at the level specified by the Bank of Russia (please see information of the Bank of Russia on the minimum rating levels of 1 August 2017).

The Regulation entered into force on 14 July 2017.

On 28 June 2017 the Bank of Russia issued Instruction No. 180-I "On Mandatory Economic Ratios for Banks."

The Instruction was registered with the Ministry of Justice on 12 July 2017.

The Instruction represents an updated version of Instruction No. 139-I. The changes are mostly technical. The change of approach to credit ratings of Russian and foreign companies should be noted. For foreign companies a rating should be assigned by a foreign rating agency (as per the level specified in the Instruction) and for Russian companies – by a Russian rating agency (as per the level specified by the Bank of Russia, please see information of the Bank of Russia on the minimum rating levels of 5 September 2017). The Instruction also takes into account that a credit risk can be measured on the basis of internal ratings-based approach for the purpose of calculating capital adequacy ratios.

The Instruction entered into force on 28 July 2017.

Project Finance

On 23 May 2017 the Government issued Resolution No. 612 amending the Program approved by Government Resolution No. 1044 to support investment projects in Russia through project finance.

The amendments provide, among other things, that the selection of projects for participation in the Program and obtaining state guarantees for loans granted to implement the selected projects shall not take place in a relevant fiscal year if the federal budget law for that year does not envisage providing such guarantees.

The amendments entered into force on 2 June 2017.

Anti-Money Laundering

On 26 July 2017 the President signed Federal Law No. 183-FZ ratifying the Council of Europe Convention on Laundering, Search, Seizure and Confiscation of the Proceeds from Crime and on the Financing of Terrorism.

The Convention was ratified with a number of reservations. In particular, the Russian Federation reserves the right to apply provisions, which relate to the transfer of information on bank accounts at the request of the other Party, in accordance with its international agreements on cooperation in relation to criminal cases and Russian laws.

Overall, it is expected that ratification of the Convention will increase the effectiveness of cooperation with foreign states to combat money laundering and financing of terrorism.

The Law entered into force on 6 August 2017.

Information Security

On 26 July 2017 the President signed Federal Law No. 187-FZ "On Security of Critical Information Infrastructure of the Russian Federation."

The Law establishes a legal framework for ensuring security of the Russian Federation's critical information infrastructure for its stable functioning at the time of computer attacks.

The critical information infrastructure entities include, among others, Russian companies which own information systems, information and telecommunication networks, automated control systems and operate in one of the specified spheres: transport, communication, energy, banking, etc. The critical information infrastructure entities are vested with a number of duties. They are obliged to: 1) immediately inform an authorized body and, if applicable, the Bank of Russia, of computer incidents; 2) comply with the established requirements for ensuring security of significant objects of critical information infrastructure; and 3) respond to computer incidents as per the established procedure, etc.

The Law will enter into force on 1 January 2018.