The Bank of Russia has put forward proposals to revise the system for accounting foreign securities in Russia. This initiative aims to mitigate risks for investors and enhance their protection. The report, titled "Depository Accounting: a New Outlook on Familiar Things," is open for public discussion.
In recent years, the Russian accounting system has encountered significant challenges when dealing with foreign counterparties. These issues arise partly because different jurisdictions employ varying systems for admitting foreign securities into their accounting frameworks.
In Russia, investors are recognized as asset owners. However, other countries may use an indirect ownership model where rights attached to a security are held by an intermediary or nominee holder. In such cases, a depository that opens an account abroad to record its clients' foreign securities is recognized as the owner rather than the investor.
The Bank of Russia suggests that only those foreign assets recorded similarly to Russian ones should be admitted to the Russian market and recorded by domestic depositories. If foreign securities follow different rules in their home countries, they might be traded in the Russian market as depositary receipts.
However, there remains a possibility that a foreign state could restrict rights to its local securities for regulatory reasons. Consequently, the paper emphasizes a depository's liability to its client. A depository may be released from this liability if it demonstrates having taken all available measures to restore violated depositor rights and assessed the financial standing and business reputation of its foreign counterparty when concluding contracts.
Regarding accounting for foreign investors' rights to Russian securities, the paper explores various scenarios. One involves modernizing the institution of a foreign nominee holder through mandatory disclosure of information about security owners or maintaining separate accounting records (segregation) mirrored by Russian institutions. Another proposal considers eliminating intermediaries so assets can be recorded directly in foreign investors' accounts with Russian depositories.
Feedback on these proposals is welcome until July 1, 2025.