Financial & Legal Services in Russia
Russia has a young financial & legal services sector that offers a range of opportunities for international and domestic companies, particularly in the light of Russian Government plans to develop International Financial Centre in Moscow.
Although the Russian economy suffered from the recent financial downturn significantly the Government managed to weather the crisis relatively well protecting to a large extent the financial sector from its impact. As the economy is gradually recovering the performance of financial institutions is meliorating.
Russia has a lot of banks, nearly 1000 by the central bank’s last count but the sector is dominated by state owned leviathans: the top 30 banks, of which many are at least part owned by the state, account for 75% of total banking sector assets. Foreign banks have very little market share. And Russia’s largest bank, Sberbank, is in a class of its own, owning 26% of all assets and a half of all retail deposits.
Non-banking sector (investment funds, insurance companies, private pension funds) is rather small yet it has demonstrated steady development throughout 2010 – 2011. Thanks to the growing stock market non-state pension funds and investment funds managed to attract significant resources recently. The insurance sector driven primarily by the demand in mandatory insurance products is also promising. Motor, property and voluntary health insurance are expected to continue to grow while life insurance market is still miniscule. The 10 leading insurance companies control about 45% of the insurance market and are highly diversified in all segments. Overall insurance penetration remains very low.
Russia’s two main stock exchanges, MICEX and RTS, signed a binding merger agreement in June 2011 (USD 5 bln deal value). MICEX is in the top 20 exchanges (World Federation of Exchanges) while RTS’s largest market is FORTS, or Futures and Options RTS.
The legal services market in Russia is burgeoning. With legislation becoming more complex and sophisticated and a larger number of transactions being ruled by English Law, international firms, primarily British, are very much in demand especially in areas such as international financing and M&A.
The Russian market opens up a wide range of commercial opportunities for British firms across the sector:
Banking – Russia is in need of more efficient banking practices, in particular on lending priorities, risk management, data processing and insolvency rules.
Legal Services – in the context of M&A Activity, privatisations, dispute resolutions, litigation and arbitration expertise in English Law is in greater demand.
Accountancy – with the increased business activity and strengthening of the regulatory regime UK expertise in auditing as well as recognised international professional certification are the most in demand.
Insurance & Pensions – The reform of the insurance & pensions industry is a key concern for the Russian government. There is an opportunity to showcase UK experience and expertise particularly in private sector pensions.
PPP – given the major infrastructure projects planned for the next decade the Russian government is keen to develop PPP projects. There is an opportunity to showcase UK experience and expertise.
Getting into the market
According to the Russian legislation foreign credit organizations wishing to do business in Russia can either set up (or purchase) a Russian legal entity or open a representative office. The latter presupposes performance of a limited range of functions which exclude any entrepreneurial activities. Foreign credit organizations are prohibited from acting via their branch network in Russia and are to choose one of the abovementioned options.
Credit organizations are subject to accreditation and licensing by a relevant authority. There are also minimum capital requirements for banking and non-banking entities (banks RUB 180 mln (2012), insurance companies RUB 120 mln (2012), private pension funds RUB 50 mln).
Special attention is paid to the foreign investors’ activities in the insurance sector where there is a 25% quota for foreign participation. The quota is determined by a ratio of total capital owned by non-residents in entities with foreign investments to the total capital of entities registered in Russia and operating in the sector. Once the quota exceeds 25%, the regulating authority stops issuing licenses to insurance entities that are subsidiaries of foreign companies or have over 49% of foreign participation in their capital.
Market intelligence is critical when doing business overseas, and UKTI can provide bespoke market research and support during overseas visits though our chargeable Overseas Market Introduction Service (OMIS).
To commission research or for general advice about the market, get in touch with our specialists in country – or contact your local international trade team.
Dionis Ardzinba, Team Leader, British Embassy Russia. Tel: +7 495 956 7486 or email: email@example.com.
Julia Ivanova, Trade & Investment Adviser, British Embassy Russia. Tel: +7 495 956 7214 or email: firstname.lastname@example.org.
UKTI runs a range of events for exporters, including seminars in the UK, trade missions to overseas markets and support for attendance at overseas trade shows.