The Central Bank recommended that brokers briefly disclose to investors a number of terms of the contract

The Bank of Russia recommended that brokers provide clients with significant information from contracts in a condensed form. This applies to the available operations of investors, the conditions for using the assets of a broker’s client, as well as the provision of assets on a loan, etc. This is how the regulator tries to increase the protection of private investors from risky operations. But this leads to an increase in the costs of brokers, as well as a new wave of clients’ turnover.

The Central Bank sent a letter to professional market participants (Kommersant got acquainted with it), in which it recommended that, when concluding a brokerage agreement, a number of its conditions be disclosed to the investor in a short form. Thus, the client must be informed about the transactions that the broker can perform on his behalf, about transactions that are available only to qualified investors, as well as transactions that require testing.

In addition, the broker is obliged to notify when he has the right to use the client’s assets in his own interests, as well as when the investor can be provided with a loan of funds for an additional fee. The procedure for settling possible disputes is disclosed, as well as information about the tariffs for brokerage services and the terms of transactions with leverage.

The Bank of Russia has already formulated a recommendation on the need to inform consumers of financial services in an understandable form in a report on improving the rules for the sale of investment products and instruments in 2020, said Elena Mende, partner at the Smolenka 33 Bar Association.

Then it was proposed to divide financial products into three categories (“red”, “yellow”, “green”) depending on the level of potential risk of the product (see Kommersant dated May 30, 2020). However, in the end, this approach was not implemented.

In addition, the Central Bank published instructions on the requirements for a key information document (KID) in relation to voluntary insurance, banking products, financial services of MFIs, consumer credit cooperatives and investment funds (see Kommersant Online dated September 15, 2020). At the same time, the Bank of Russia did not provide any recommendations regarding brokers, Kira Vinokurova, co-head of the practice of sanctions law and compliance at Pen & Paper, noted.

However, the new document, unlike KIDs, is only a letter of recommendation from the Central Bank, which has a non-public character, in fact, it is not a generally binding norm, but only a soft law norm, emphasizes Maria Lyubimova, head of the Legal Support for Foreign Economic Activity practice at the Regionservis Bar Association.

The experts interviewed by Kommersant were generally positive about the new recommendations. Objectively, the client is not able to study the broker’s regulations on dozens of pages, more concise and transparent formats are needed, says Dmitry Alexandrov, managing director of Ivolga Capital.

The recommendations given in the message of the Central Bank have already been taken into account, contained in the broker’s regulations and in contracts concluded with clients, Dmitry Lesnov, head of the Finam client service development department, assured.

The warnings for clients recommended by the regulator may have a positive effect in terms of limiting the share of high-risk transactions for unqualified or novice investors, added Andrey Barkhota, an independent financial analyst. According to him, the volume of transactions with leverage for such clients may decrease by 15-30% over a six-month horizon. At the same time, the conversion of unqualified investors into qualified ones will increase, the expert believes.

Last summer, the regulator announced plans to raise the property qualification for qualifying investors from 6 million rubles. up to 30 million rubles Against this background, brokerage companies noted a surge in demand for “rounding off” (see “Kommersant” dated September 15, 2022). According to the Bank of Russia, by mid-2023, the number of qualified investors reached 617 thousand people, an increase of almost 40% over the year. At the same time, there is potential for further growth – according to the Moscow Exchange, the number of unique brokerage accounts in the middle of the year was almost 26 million.

At the same time, market participants note an inevitable increase in costs, primarily for operating costs associated with the organization of informing. According to Andrey Barkhota, “the specific costs of informing may amount to 1-3 thousand rubles. per client per year. For large brokers with a wide client base, the costs can reach several hundred million rubles a year, the expert concluded.

Ksenia Kulikova, Ekaterina Volkova