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. Last Updated: 07/27/2016

Securities Chief Unveils New Custody Law

The chief of the Federal Securities Commission presented a new law on custody of securities Tuesday and unveiled plans for a single all-Russia securities depository, brushing aside any Central Bank claims to a dominant regulatory role in the sector.

"Those powers reside with the commission, and such monopolization by the Central Bank is not permissible," the commission's chairman, Dmitry Vasilyev, told a meeting of representatives from regional securities commissions.

The new Temporary Regulation on Depository Activities, dated Oct. 20, covers two levels of custody activity -- accounting of deposited securities and the actual holding of securities.

The measure is intended to govern activity in the sector while a depository infrastructure is being created.

The securities commission is responsible for all licensing of depositories unless it specifically empowers another organization to issue licenses.

On the depository issue, Vasilyev said that if disagreements with the Central Bank could not be overcome, it would be necessary to create two central depositories in Russia.

In that case, he said, the Central Bank would be responsible for a government bond depository, while the Central Bank would regulate a depository for company shares.

Russian banks, which currently act as depositories for both the bond and share markets, fear that securities commission rules will not address their needs.

Andrey Kozlov, deputy chairman of the Central Bank, wrote to Vasilyev in August demanding that the draft of the temporary regulation be scrapped and rewritten to reflect proposals by market participants.

In his letter, Kozlov described the commission's draft as "an attempt to promulgate by administrative means the principles on which a concrete depository system for the whole of Russia would be based."

The commission nonetheless has kept the basic structure of its original draft in the final document. Kozlov could not be reached for comment Tuesday, but his secretary said he would make a statement Wednesday.

Licensing of custody activities was the preserve of the Central Bank until the new law on the securities market allocated this function to the securities commission earlier this year.

The commission announced the award of the first six depository licenses Nov. 4, and none of the licensed organizations was a bank.Valery Tyukov, general director of one licensed organization, the Yekaterinburg regional depository center, said Tuesday that separation of depository activity from a banking context was good.

"Big banks crash frequently, and it is clear that the banking system in Russia is not fully formed and is not solid," Tyukov said. "Combining the risks of the banking system with the risks of the securities market does not make sense."