Perplexed by the risks – Newspaper Kommersant No. 170 (7371) of 09/15/2022

Despite the abundance of more than acute problems in the financial system over the past six months, its regulator suddenly remembered the risk management system in pawnshops, which is hardly the most relevant now. According to market participants, the Central Bank began to closely monitor the situation and strongly recommend the introduction of the system. The Bank of Russia believes that the players are not doing enough to prevent their own instability: “there are high operational and legal risks in the activities of the pawnshop, which may have a negative impact in the medium and long term.”

Pawnshops are puzzled by such attention to their virtually non-existent risks. “I would like to understand what is the reason for such a biased attitude, almost the desire to finally regulate the activity, towards pawnshops? – market participants are surprised in an address published recently on the website of the Association for the Development of Pawnshops. – We are all well aware that the implementation of this system for both large and small … pawnshops is not only significant additional financial costs, but also a burden on staff”.

Even with all the bias, on their part, pawnshops, their bewilderment looks largely justified. Considering the small scale of activities of even large players, none of them fell under sanctions. In fact, this is one of the few segments that are almost not affected by the crisis caused by military operations in Ukraine. In addition, neither according to the regulations of the Central Bank, nor according to the legislation, the risk management system for pawnshops is mandatory, unlike, for example, MFIs.

And this is by no means an omission of regulators, of which there are at least two pawnshops – the Bank of Russia and the Federal Assay Office. Pawnshops are engaged in virtually risk-free collateral lending. According to market participants, the average loan amount is half the market value of collateral. Moreover, pawnshops are required to insure collateral against loss. That is, even taking into account a certain criminal veil around the industry, the risks of a threat to the continuity of the players’ activities are minimal.

Moreover, it is also impossible to call pawnshops free from regulation. This year, for example, they must master the GIIS DMDC (an information platform for the interaction of participants in the precious metals and stones market) and begin registering pledged jewelry in it.

In general, to understand what prompted the Central Bank to introduce new requirements for the risk systems of pawnshops right now, neither I, nor market participants, nor experts have succeeded yet. Perhaps this market attracts the regulator simply as an island of normality forgotten in many other segments of the financial system?