RESOLUTION OF BUREAU OF INTER-PARLIAMENTARY ASSEMBLY OF EURASIAN ECONOMIC COMMUNITY

of April 14, 2005 No. 10

About Recommendations about harmonization of the legislation of state members of EurAsEC in the field of banking regulation (on the basis of the comparative and legal analysis of national legal systems and taking into account regulations of the General agreement on provision of services of the WTO, documents of Basel committee of banking supervision, Organization for Economic Cooperation and Development and International Monetary Fund)

The bureau of Inter-parliamentary Assembly decides:

1. Approve the Recommendations about harmonization of the legislation of state members of EurAsEC in the field of banking regulation prepared on the basis of the comparative and legal analysis of national legal systems and taking into account regulations of the General agreement on provision of services of the WTO, documents of Basel committee of banking supervision, Organization for Economic Cooperation and Development, and also International Monetary Fund (appendices 1, 2).

2. Send the specified documents to parliaments, the Secretariat of Integration Committee of EurAsEC for use in work on harmonization of national legal systems and enhancement of system of law of Community.

Appendix 1

to the resolution of EurAsEC MPA Bureau of April 14, 2005 No. 10

Recommendations about harmonization of the legislation of state members of EurAsEC in the field of banking regulation (on the basis of the comparative and legal analysis of national legal systems and taking into account regulations of the General agreement on provision of services of the WTO, documents of Basel committee of banking supervision, Organization for Economic Cooperation and Development and International Monetary Fund)

The purpose of these recommendations is preparation of suggestions for improvement and standardization of the legislation of state members of EurAsEC in the field of banking regulation in the states of Community.

The carried-out comparative and legal analysis allows to tell that the regulations adopted in the states of Community in the field of banking regulation are in general sufficient. Nevertheless some fields of regulation from the point of view of integration processes need enhancement and harmonization. In particular, it belongs to the rules concerning licensing, procedures of the termination of banking activity, capital adequacy, corporate management, system of prudential standard rates and supervising measures.

System of economic standard rates. As showed the analysis, at the legislative level there are significant differences in determination of contents of the economic standard rates established by the Central (national) Banks for banks and other financial institutions.

Licensing. It is necessary to take measures for streamlining of requirements for licensing at the legislative level. Besides, rules of licensing shall be added with more strict requirements of supervision body designed to provide creation in banks of powerful and effective internal risk management systems for implementation of monitoring and approval of new activities and new products.

It is also necessary to analyze the main activities of each bank to find out whether the license for activities on attraction of financial resources of the population in deposits is necessary to it.

Version of the solution of this problem legislatively affirmed right to use the word "bank" in the name only to those organizations, it is authorized to them to accept means of the population in deposits can become possible.

Requirements for professional suitability and goodwill for the owners and persons exercising real control. Requirements of "professional suitability and goodwill" for management of the banks, shareholders and persons exercising control are one of the most important methods of ensuring stability and viability both separate banks, and bank system in general.

Standards of "professional suitability and goodwill" are caused not by general aspiration to respectability of banking sector. They are designed not to allow the repeating bank crashes caused by offenses of those persons which already proved the unwillingness or inability to direct banking enterprise properly.

In Russia the regulations concerning requirements and check regarding "professional suitability and goodwill" contain in a number of the laws and instructions. The limited requirements imposed to management include availability of legal and (or) economic education and (or) work experience in quality of the executive bank manager, and also "goodwill"; the refusal in approval in position can be caused by making of certain offenses, unsatisfactory results of work or the fact that the provided information is not true.

Control measures in case of transactions on merge and absorption. It is necessary to make amendments to the legislation regulating activities of the Central (national) Banks and to the legislation on banks and banking activity that the concept "control" was determined more widely and allowed possibility of removal of expert evaluation. In particular, those persons or groups of persons which separately or together can exert impact on adoption of decisions by bank shall fall under such concept or can control bank, having less than 20 percent packet of its shares.

Capital adequacy. Information on availability of the real capital, i.e. means which can be freely and are at once used for covering of losses and mitigation of their effects, it is difficult to receive because of too broad supervising definition of the capital, because of widespread schemes of inflating of the capital, because of imperfect rules of assessment, and also procedures interfering use of borrowed funds as the capital. Besides, according to the legislation existing in state members with EurAsEC insolvency of bank is estimated from the point of view of its liquidity, but not from the point of view of capital adequacy.

If criterion of solvency to make capital adequacy, then it will allow to reveal more actively possible risks and to take immediate measures on correction of situation.

It is necessary to estimate constantly what level of the capital is sufficient for conducting activities in such financial conditions which exist in state members of EurAsEC. The recommended 8 percent level offered by international standards is intended for the banks operating in steady economic environment and differing in rather steady position. Thus, in the conditions of smaller stability in the states of EurAsEC it is necessary to establish higher level of the capital in absolute expression that could mitigate effects of any system crises. Authorities should aim at establishment of higher level of the required capital as a matter of experience of development of banking sector and relative instability of the existing conditions.

Suspicious and criminal activities. Now there are no legal basis and the mechanism allowing to determine properly what constitutes "inadequate use of means", "personal benefit" and other illegal actions in the financial sector.

It is necessary to develop complex determination of the concept "inappropriate activities" which will allow to take immediate and effective law enforcement action in the context of the bank law. For example, provision of the doubtful and incomplete reporting to supervision body could fall under such determination, lack of carefully developed procedures according to the principle "know the client" (real name), doubtful data on financial position.

The consolidated supervision and appropriate authority. The legal base shall be expanded so that it allowed supervision body to exercise control of the consolidated bank groups.

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