The State Duma may be obliged to insure investment accounts. Broker commissions will rise to prohibitive level

Anatoly Aksakov, chairman of the State Duma financial market committee, said at the second reading that the State Duma plans to consider a bill on compulsory insurance of individual investment accounts (IIA) in June 2022.

“A fundamental decision has been reached regarding the insurance of investment accounts. Tentatively, we will consider the bill in June. The amount of insurance has not changed and is 1.4 million rubles. A system is being created by analogy with the deposit insurance system,” he said.

Aksakov declined to specify other details. The bill itself was presented to the lower house and was passed at the first reading in 2017. However, the procedure was slowed to be evaluated later.

what will be on the bill

“” learned the details of the bill prepared for the second reading. The document is at the disposal of the publication. Amendments are made in the laws of “Securities Market”, “Bankruptcy (Bankruptcy)”, “About Self-Control Institutions in the Financial Market”. The document is scheduled to enter into force on 1 January 2023.

It states that self-regulatory entities in the exchange have the right to establish a compensation fund. Contributions to the fund must be made by SRO members – brokers and asset managers. The brokers’ claim for compensation to their clients rests with the SRO. The payment procedure is also determined by the SRO. Payments from clients of bankrupt brokers are subject to satisfaction from the compensation fund – that is, it falls primarily to creditors. A council is planned to be formed to manage the fund. It determines the amount of compensation and loss to be given to the investors.

In fact, in this version of the bill, it was decided to move away from the investment insurance fund affiliated to the Deposit Insurance Institution. Instead, a compensation fund is created.

Why was the bill frozen for five years?

The first reading of the document took place in 2017. Later, due to disagreements, the document was ignored in the second reading.

“In 2017, the main controversy around the bill arose as market participants did not support the idea of ​​insuring the broker’s credit risk and insisted on its voluntariness. Major respondents were also concerned about the proportionality of costs in implementing an adverse scenario. Situations where the funds of the fund were created mainly at the expense of major players were not ruled out, but when the risk of damage to property recorded in The IIA materializes, unstable players with a high-risk business model will be paid.” said Vasily, President of the National Financial Union Zablotsky.

Alexey Timofeev, President of the National Association of Stockholders (NAUFOR), familiar with the second reading version of the bill, announced in 2017 that it was not possible to create a fund under the Deposit Insurance Corporation. supported, but it is foreseen that it will not participate in the financing of the state. Therefore, he said, the bill has not yet reached its second reading.

Brokers can pay 45-85 billion rubles for the fund

According to Timofeev, the bill now assumes that a decision to raise a fund is made by self-regulatory entities in the stock market.

“Therefore, the SRO sets the conditions for its formation and expenditure. Obviously, this means agreement with industry terms consolidated in the SRO and frankly the Bank of Russia. This should not hinder or hinder the acquisition of customers who will ultimately bear the associated costs, and should not hinder or encourage competition between intermediaries. Today it is impossible to predict the amounts of contributions and the approaches to their differentiation, they require very careful study when deciding to create a fund,” said Timofeev.

Andrey Salashchenko, Deputy Director General for interaction with authorities and public institutions of Otkritie Investments, said that the last calculations by market participants of the possible amount of savings in the fund were made several years ago.

“Based on estimates of the development of IIS at that time, it was assumed that for the fund to begin to fully perform its functions as an insurance institution, it would have to increase from 300 to 500 million rubles. Starting before the minimum amount has been accumulated can quickly run out of funds. The rate of cuts today requires a separate discussion. “The models used in the calculation before could probably be used, but the numbers obtained cannot be considered very relevant,” he said.

Dmitry Alexandrov, Managing Director of the Ivolga Capital investment company, noted that a total of more than 4.1 million IIA accounts were opened in Russia, financed in the amount of about 455 billion rubles.

“The average IIA account is 111 thousand rubles, which is significantly lower than the proposed insurance limit of 1.4 million rubles. The nature of such accounts implies that in any case, the deduction can be obtained in relatively small amounts, about 1 million rubles. Thus, it can be predicted that almost all IIS accounts will be covered by insurance.

Assuming that the insurance premiums are 10% of the money in the account, the brokerage environment will have to pay an additional 45 billion rubles. Brokers hit hard by the drop nail stocks and falling liquidity in the stock market. And the overhead in the form of interruptions can become unbearable for them,” Alexandrov explained.

According to the estimations of Associate Professor of PRUE Department of Statistics. GV Plekhanov Olga Lebedinskaya, brokers’ costs may be higher – 85 billion rubles.

Costs in the amount of 9-19 billion rubles will be borne by the customer.

According to Alexandrov, the problem with this type of insurance is that the broker cannot limit the client to the range of assets purchased from The IIA.

“The client can independently increase the risks in his portfolio, but the broker will not receive additional income from it. At the same time, the broker itself does not have a percentage income from the client’s assets, similar to a bank. He earns commissions from REPO transactions on his assets and if the client has the appropriate permission to do so. This does not cover possible booking costs. For the instrument to be operational, the set of instruments that can be purchased at The IIA will need to be significantly limited and above all they must be low-term reliable bonds to make the risks more predictable,” Aleksandrov is confident.

According to him, if the bill is passed, brokers will definitely try to reduce the number of IISs and raise the commissions to almost prohibitive ones to offset the reserve cost.

“I think this contradicts the idea of ​​the development of the exchange, from which IIS was originally created. Commissions can be symmetrical to possible deductions. And they should not be from transactions, but from the monetary value of the asset. That is, we can see commissions of 2-4% of the size of the assets – this is significantly higher than the current values, ”said Alexandrov.

Thus, Alexandrov estimated the cost of the Russians for the created insurance fund at 9-18 billion rubles.

Zablotsky acknowledges that broker fees may increase.

“The costs incurred by market participants are likely to actually be passed on to customers. But here comes into play the same mechanism that works when buying any insurance – home, car, etc. “The investor will pay more, but investments in IIS will become safer,” he said.

In June 2022, the State Duma plans to consider a draft law on compulsory insurance of individual investment accounts in the second reading. The document has been frozen since 2017. Industry representatives and economists fear that brokers will start shifting the cost of cuts to the investment insurance fund to the Russians. Commissions can be prohibitive according to their assessment – 2-4% of the money deposited into the account. The enterprise estimated the cost of the Russians for the created insurance fund at 9-18 billion rubles.

Source: Gazeta

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