On July 19, 2024, "Bill No. 676816-8 “On Amendments to the Federal Law “On Banks and Banking Activities and Certain Legislative Acts of the Russian Federation" (hereinafter - the "Bill") was submitted to the State Duma of the Russian Federation, providing for the possibility of opening branches of foreign banks in the territory of the Russian Federation. The Bill establishes the procedure and conditions for the operation of branches of foreign banks in Russia, as well as the procedure for their accreditation and the list of permitted banking operations.
If the Bill is adopted, a foreign bank will be able to conduct operate on the territory of the Russian Federation through its branch subject to the following conditions:
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legal banking operations in a foreign country for at least 3 years;
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availability of credit rating level established by the Board of Directors of the Central Bank of the Russian Federation;
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compliance of the foreign bank with other requirements established by the Board of Directors of the Central Bank of the Russian Federation, etc.
In addition, the Draft law proposes requirements to the composition and structure of employees of a branch of a foreign bank: the number of foreign and stateless person of employees in the branch should not exceed 50% of the total number of employees.
At present, foreign banks in Russia can exercise banking activities only through the establishment of subsidiaries or representative offices1. Restrictions on branches of foreign banks have been in place since 20132, when a complete ban on their opening was introduced. The reasons for the restrictions were both insufficient control by the Russian regulatory authorities over branches of foreign banks and the absence of certain requirements for branches of foreign banks that were applied to Russian banks, such as provisions on the allocation of funds to the mandatory reserve funds, etc.
The Bill eliminates the listed shortcomings in the legal regulation of branches of foreign banks. Thus, the scope of the legal capacity of such branches is limited. Branches of foreign banks will be prohibited from conducting transactions with individuals and individual entrepreneurs, excluding foreign currency purchase and sale transactions and transfers without opening bank accounts. In addition, branches of foreign banks are not allowed to conclude trust management agreements, as well as to conduct any transactions with precious metals and precious stones.
Accreditation is also an obligatory condition for the branch of a foreign bank to operate in the territory of the Russian Federation. For this purpose, a foreign bank must submit to the Central Bank the package of documents stipulated by the Bill not later than 6 months from the date of making a decision to establish a branch in the territory of the Russian Federation.
A branch of a foreign bank is recognized as accredited from the moment the Bank of Russia enters information into the register of licenses for banking operations. The Bank of Russia may also subsequently decide to terminate the accreditation of a branch of a foreign bank in cases of revocation or cancellation of a license for banking operations on the territory of the Russian Federation.
The amendments introduced will allow Russia to directly participate in settlements on foreign trade transactions in the state currency, while maintaining the national monopoly on transactions with precious metals. The adoption of the Bill also helps to reduce the risks of applying secondary sanctions to foreign banks when they invest in the Russian financial sector. The key changes imply the possibility of unhindered cross-border payments for individuals and legal entities.
1 Federal Law of December 2, 1990 No. 395-1 "On Banks and Banking Activities".
2 Federal Law of March 14, 2013 No. 29-FZ "On Amendments to Certain Legislative Acts of the Russian Federation".