In June 2022, Anatoly Aksakov, who chairs the State Duma committee on financial markets, signaled that a bill introducing mandatory insurance for individual investment accounts (IIA) would be reviewed at the second reading. He stated that a firm decision had been reached to insure investment accounts and that the plan was to consider the bill in June. The insurance cap would stay at 1.4 million rubles, and the system would be modeled after the existing deposit insurance framework, he noted. Aksakov declined to disclose further specifics. The bill originally appeared in 2017 and passed its first reading, but the process stalled for further evaluation.
what will be on the bill
Reliable details obtained by the publication socialbites.ca indicate the bill under preparation for the second reading is available for review. It includes amendments to the Securities Market laws, Bankruptcy provisions, and rules governing Self-Regulatory Organizations in the Financial Market. The document anticipates entry into force on 1 January 2023. The proposal gives self-regulatory bodies in the exchange the authority to establish a compensation fund. Contributions would come from SRO members such as brokers and asset managers, with the SRO responsible for determining the compensation payable to clients and the payment procedures. When a broker fails, payments to clients would largely draw on the fund, with creditors also involved. A governing council would oversee the fund, set compensation levels, and determine losses to be covered by investors. The version moves away from an investment insurance fund tied to the Deposit Insurance Institution toward a standalone compensation fund.
Why was the bill frozen for five years?
The initial reading occurred in 2017, but disagreements subsequently led to delays. Market participants argued against insuring brokers’ credit risk and urged voluntariness instead. They also worried about cost distribution in adverse scenarios and about the possibility that large players would primarily fund the fund, leaving risk to smaller, riskier firms. Vasily Zablotsky, president of the National Financial Union, explained that the dispute centered on the risk-sharing model and the balance between investor protection and market competitiveness. Alexey Timofeev, president of NAUFOR, noted in 2017 that a fund under the Deposit Insurance Corporation would not be feasible, and that the bill had not yet progressed beyond the first stage.
Brokers can pay 45-85 billion rubles for the fund
Timofeev said the current version assigns the decision to grow the fund to self-regulatory organizations in the stock market. The SRO would set the terms for formation and spending, with industry norms encoded in the SRO’s rules and coordination with the Bank of Russia. This arrangement aims to avoid curbing client acquisition or stifling competition, though the exact scale of contributions remains uncertain and merits careful study. Andrey Salashchenko of Otkritie Investments noted that earlier market estimates suggested the fund would need hundreds of millions of rubles to function effectively, and that current numbers could differ significantly. Dmitry Alexandrov of Ivolga Capital pointed out that more than 4.1 million IIAs have been opened in Russia, totaling roughly 455 billion rubles, with an average account size around 111 thousand rubles, well below the proposed 1.4 million ruble cap. If insurance premiums were about 10 percent of account value, the brokerage sector could face a 45 billion ruble burden, and liquidity concerns could push costs higher. Several experts believe the true costs might reach 85 billion rubles in some scenarios.
Olga Lebedinskaya, a statistician from PRUE, noted that broker costs could be higher still. The central challenge lies in how to structure coverage for clients rather than for brokers and in ensuring predictable risk management. Some argue that brokers would push to narrow the eligible IIAs and raise commissions to offset reserve costs, potentially affecting the development of the exchange with IIS as a core feature. Others suggest commissions tied to asset value rather than transaction volume as a fairer approach.
Costs in the amount of 9-19 billion rubles will be borne by the customer
The key issue is that a broker cannot restrict a client to a limited set of IIAs. Clients may take on higher risk with their portfolios, while brokers would not earn additional income from those risks. To keep the scheme viable, the legislation may require restricting the instrument mix available under IIAs to stable, short-duration bonds, ensuring more reliable risk outcomes. If enacted, brokers are likely to push for lower IIS volumes and higher commissions to cover reserve expenses, which could conflict with the initial goal of promoting a broad, transparent market for IIS. Some observers argue that fees could be aligned with the asset’s value rather than per-transaction charges, potentially surpassing current commission levels and prompting a shift in market structure. The estimated total cost borne by Russians for the new insurance framework could range from 9 to 18 billion rubles, with brokers facing higher costs being passed to clients. Public figures acknowledge that broker fees may rise, but the investor would gain greater protection and confidence in IIS investments.