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. Last Updated: 07/27/2016

Foreign Bankers Coping With New Rule

Russian banks are scrambling to sort out a recently enacted rule that requires their chief executive and accountant both be Russian citizens if the banks want to play the financial markets.

The confusion comes just a day after regulators said Uneximbank subsidiary MFK would not be able to get a license to conduct transactions on the securities markets if Boris Jordan, an American businessman with Russian ancestry, becomes the bank's new head as planned.

Meanwhile, regulators Tuesday sought to clarify the Sept. 19 resolution. Valentin Zavadnikov, an official with the Federal Securities Commission, said the rule is not retroactive and would apply only to new banks or banks renewing previously granted licenses.

"The law doesn't have any force with those [banks] that are already working" with securities markets licenses, Zavadnikov said at the opening of the Moscow Stock Center on Tuesday.

All banks in Russia are required to receive a license from the Central Bank to be "market participants," for example, acting as a broker-dealer or as a custodian for stocks.

Many so-called "foreign" banks, those registered as Russian banks but founded at least in part with foreign capital and including the likes of Chase Manhattan, Citibank, Credit Lyonnaise and CS First Boston, have been instrumental in channeling capital to the Russian stock and bond markets. Officials at these banks said Tuesday they have expected regulators to pass laws helping push Russians into the upper echelons of management.

"Most banks are aware there were going to be rules implemented which would secure a minimum contingent of local Russian people in top executive committees," said Frank Kuylaars, the Dutch general director at ABN Amro in Moscow. Under the new rule, Kuylaars' job as general director would have to be filled by a Russian employee.

"It's our aim at the end of the day that we work with local management. So for us that's within our own objectives," Kuylaars said.

The question of who would control banking regulation has become somewhat of a political battle between the Securities Commission and the Central Bank. The new rule solidifies the power of the Central Bank to license banks that wish to deal in equities and fixed-income investment instruments. In the short term, bankers with licenses about to expire could deal with the rule by simply changing the title of their non-Russian chief executive.

Or "this might trigger the hiring of a number of temporary Russian chief executives," said ABN Amro's Kuylaars. "We're Dutch, we're pragmatic. We can change the title, but that's not what we want to do. We want to hire a Russian, a person of substance."

"I don't think they've just put in place new regulations to disturb us," said Societe Generale's Jacques Megreditchian, deputy general director in charge of capital markets. "But people will use them to fight against their competitors, and that's possible in any country."

Other banking heads said the resolution may amount to a political attack on Jordan, one of the founders of Renaissance Capital Group, which merges formally with MFK on Jan. 1.

Earlier this month, Jordan was named chief executive of the merged investment banking powerhouse. The head of Uneximbank, Vladimir Potanin, was named chairman.

A spokesman for Jordan said the 31-year-old American banker is "confident he'll get approval for the position because he's applying to be chief executive of MFK Group, the holding company, and not AKB MFK, which does the [banking] transactions."

The spokesman confirmed reports that Jordan had at one time considered applying for Russian citizenship, but said that the current political climate has forced him to put the idea aside for now.