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. Last Updated: 07/27/2016

FSC Presents Draft Governance Code

The Federal Securities Commission on Tuesday presented the draft of a much-awaited corporate governance code, aiming to bring local business up to global standards.

The unprecedented code, which has been in the pipeline for a year, was welcomed by analysts, who said the document, albeit not legally binding, would be instrumental in improving the business climate.

Commission head Igor Kostikov said he expected investors to follow the guidelines of the code, which the market watchdog drafted together with government and market participants.

"Our target is ... to make this document the unified standard for the securities market," Kostikov said at a news briefing after an official presentation of the code.

The draft code presented Tuesday differed from what some stock market analysts had expected.

They feared it would be merely a collection of hundreds of instructions, that it would be binding for market participants and thus detrimental for the market.

Instead, the commission presented a slick 70-page, 10-chapter code that describes in detail the principles of corporate conduct, sets rules for general shareholders meetings and defines the functions of a company board and executive bodies and procedures for their election or appointment. It also covers corporate information disclosure, paying dividends and settling corporate conflicts.

The code was drafted with the help of the international law firm Coudert Brothers.

Kostikov said that the main task of the commission was to persuade companies to provide ample and reliable information about themselves and that the commission planned to monitor violations of the code and publicize them.

United Financial Group praised the content of the code, saying it was based on a range of the best international practices.

"This is a period of major regulatory advances in corporate governance in Russia, which is a crucial value driver for Russian equities," UFG wrote in a market note. "Even where companies have an interest anyway in better governance, improved legal sanctions and quasi-legal [such as the code] incentives will stimulate and systemize the process."

For the next two months the commission plans to listen to what the market has to say about the code, before submitting the draft for the government's approval by the end of November and publishing it by the end of this year or early 2002.

Elena Krasnitskaya, a corporate governance analyst with Troika Dialog, said this final drafting stage is important.

"The challenge here is to make the discussion a transparent process and a two-way road," she said.

"There is a risk of having international investors discriminated against if they cannot participate in the discussion.

"But an even greater challenge will be to see the companies abide by the commission's recommendations," she added.

"The completion of the drafting will be a great leap forward for the market as corporates will no longer have an excuse not to improve corporate conduct.

"I expect it to differentiate between investor-friendly companies and those who are not."

(MT, Reuters)