Bank of Russia wants to be aware of upcoming large FX deals

Bank of Russia wants to be aware of upcoming large FX deals Photo: Kuba

The Bank of Russia is considering launching a notification scheme for forthcoming currency deals that may affect the ruble's exchange rate and market liquidity. Similar mechanisms are already working in other emerging market countries. The decision is yet to be made, but industry sources say that some banks oppose the initiative arguing that it can affect their business.

Russia's Central Bank may ask banks and major companies to forewarn it about big foreign exchange deals, claims Reuters citing financial markets sources. Such practice can help the regulator prevent market violations without breaching ethical standards, as banks won't be obliged to disclose their clients' names.

Currently, the Central Bank alongside with representatives of major banks and market associations is developing a new foreign exchange (FX) code in order to prevent fraud, improve market efficiency and bring Russian rules into line with global standards. Several sources state that the regulator has discussed the prospects of setting up a ''reporting line'' with the National Finance Association (NFA). ''The decision is likely to be made no earlier than next year,'' one of the sources said.

According to the same market sources, banks are clearly against the initiative and concerned about what kind of penalties they may face if they do not comply. ''The market is not craving to report to the Central Bank on top of what it has to under current law.'' However, the NFA committee is currently treating the FX code as a recommendation but not a rule. Thus, the code remains voluntary, and market players have no obligation to sign it. At the same time, some sources argue that the regulator is already able to obtain market information that is not available to others. ''The Central Bank can ask and does ask anyone (about deals on the market), and this is considered to be normal,'' said a source close to the regulatory authorities.

Governor of Central Bank Elvira Nabiullina with President Vladimir Putin. Photo: kremlin.ru

Some emerging market countries have similar practices. Chinese companies have to obtain approval to exchange yuan into foreign currency for overseas acquisitions and to perform large cross-border deals. In India, it is a common practice to inform the Reserve Bank of India about substantial transactions, although there are no formal requirements. The Russian ruble is currently a free-floating currency, but the Central Bank's proposal is a step to stricter currency controls.

In past, major corporate transactions have already caused ruble volatility. For example, the regulator had to intervene to support the currency after a 625 billion ruble ($9,43 billion) bond sale by Rosneft in 2014. The Central Bank described the Rosneft bond sale as not transparent, although the company denied using proceeds to buy foreign currency.

By Anna Litvina