Ambassador’s Notebook: Moscow as an International Financial Center

(RIA Novosti – Alexander Yakovenko – May 27, 2013) 

[Former ambassaor to UK and Deputy Minister of Foreign Affairs of the Russian Federation]

Since 2010, Russia has been consistently implementing the top priority national economic project to develop Moscow as an International Financial Center (MIFC). Major reforms to our national financial architecture demonstrate the new advantages of Russia’s financial market to international and domestic investors alike as it integrates further into the global system.

After the 2011 merger of the two largest national exchange platforms ­ RTS and MICEX ­ the new united Moscow Exchange this February conducted a successful IPO on its own platform, demonstrating possibilities for large companies to raise capital in Russia. Remarkably, 23 percent of the shares were purchased by British investors.

“This is a good sign, and a crucial test proving that domestic placements in local shares are possible. I think this IPO must serve as a case study for other privatizations that will follow later this year and next,” said Dmitry Pankin, Head of Federal Financial Markets Service (FFMS).

“The Moscow Exchange’s IPO, the largest ever IPO to take place solely on a Russian exchange platform, marks a major step forward in the exchange’s development, and is a major advance for the Russian financial market’s growth prospects,” said Alexander Afanasiev, the Exchange’s Chief Executive.

Also this February, the Moscow Exchange became the first CIS exchange to give foreign banks direct access to its foreign exchange market, starting with the Eurasian Economic Community (Belorussia, Kazakhstan, Kirgizia and Tajikistan).

The Russian Central Depositary, a key element in this new financial infrastructure, became fully operational in March. The two leading international depositaries, Euroclear and Clearstream, have opened Central Depositary accounts within Russia. These steps will ease foreign investors’ access to Russian securities, starting with the highly attractive market of federal government bonds.

In May 2013, Russia completed the first phase of legislative work toward establishing a financial megaregulator: the finalized draft of the Central Bank Act was introduced to the State Duma and was passed in the first reading. The bill will transfer FFMS control and oversight functions regarding financial markets to the Central Bank. Depending on the legislative process, the megaregulator could become operational in August.

In April 2013, the Government granted the Ministry for Economic Development the right to apply to diplomatic missions and consulates to back visa requests by representatives or employees of major foreign companies investing in Russia, as well as Skolkovo and MIFC participants. An implementation mechanism is currently under consideration. These new regulations will help attract foreign investment into Russia and create a business environment that is more amenable to foreign investors.

“Financial infrastructure and regulation are two areas in which we have been making strides,” Russian MIFC Taskforce head Alexander Voloshin said. Next on the MIFC Taskforce’s agenda is long-term capital, further improvements to corporate management of the Exchange, Central Bank capital procedures, and Central Depositary recognition.

As it happens, these and other issues related to the development of the Russian financial market are also on the agenda of the UK-Russia MIFC Joint Liaison Group, established in 2011 following the bilateral summit in Moscow. It is co-chaired by Alexander Voloshin and the Lord Mayor of London and its expertise has been an active support in work on the MIFC project.

The Group’s fifth meeting is to be held on May 28, 2013 in Moscow during the visit to Russia by Lord Mayor of London Roger Gifford, who will be accompanied by a delegation from the City. The priority issues for discussion at the meeting will include long term finance and how to attract private capital into infrastructure investments, public private partnerships, financial education and training, as well as regulatory and supervisory issues. The mutually beneficial exchange of ideas and advice on developing financial markets and global trends between Russian and British experts has become a valuable and welcome resource for the MIFC’s forward-looking agenda.