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Russia
Score Rank
Financial Standards Index 39.17 out of 100 53
Business Indicator Index 7.07 out of 12 67

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Overall Standards Summary

Russia achieves low overall compliance with international standards and codes, with a score of 39.17 out of 100 in our Financial Standards Index. Although Russia's compliance in all three broad categories still falls short of the 12 best practice standards, efforts to comply are underway. Compliance in the area of macroeconomic policy and data transparency compliance is relatively high, most notably with the data dissemination standard. Institutional and market infrastructure standards are not fully observed although in most areas Russia has declared its intent to follow international best practices. Reforms of the anti-money laundering rules and the legal framework for insolvency and creditors’ rights are in the pipeline. Russia is also in the process of adoption of international standards for auditing and accounting, although the progress in converging its accounting standards with the International Financial Reporting Standards has been slow. Corporate governance practices achieve the highest rating in this category with laws on the books observing international standards. The enforcement of the corporate governance rules, however, remains a challenge. As far as the financial regulation and supervision are concerned, the Russian authorities have also indicated a strong commitment to reforms and aligning their financial sector supervision practices with the international best practices. An important step towards achieving this goal has been the adoption of a new Law on Insurance. The plans to integrate financial sector supervision under one regulatory body are under discussion.

Choose a standard for a detailed compliance report:
12 Key Standards for Sound Financial Systems

Compliance Level
Special Data Dissemination Standard
CP
Code of Good Practices on Transparency in Monetary Policy
EN
Code of Good Practices on Transparency in Fiscal Policy
EN
Effective Insolvency and Creditor Rights Systems
ID
International Financial Reporting Standards
ID
Principles of Corporate Governance
EN
International Standards on Auditing
ID
Anti-Money Laundering/Combating Terrorist Financing Standard
ID
Core Principles for Systemically Important Payment Systems
II
Core Principles for Effective Banking Supervision
ID
Objectives and Principles of Securities Regulation
ID
Insurance Core Principles
ID
II = Insufficient Information | NC = No Compliance | ID = Intent Declared | EN = Enacted | CP = Compliance in Process | FC = Full Compliance

Macroeconomic Policy and Data Transparency

CPSpecial Data Dissemination Standard

On January 31, 2005, the Russian Federation became a subscriber to the International Monetary Fund's (IMF) Special Data Dissemination Standard (SDDS). The IMF's 2009 Article IV Consultation report notes that Russia's data is broadly adequate to permit surveillance, but expressed concern that there were still problems with data accuracy. The SDDS website shows that Russia meets or exceeds all timeliness, periodicity, and coverage requirements, although it does avail itself of a timeliness flexibility option for its central government operations data. Advance release calendars are available for all datasets and data is simultaneously released to all interested parties. Confidentiality is protected under provisions of the Statute on the Federal Statistics Service (effective as of December 2007) and other legislation, and summary methodologies are available for all datasets required by the SDDS. However, the SDDS website discloses that Russia does not provide advance notice of methodological changes for several data categories, announcing such changes at the time of implementation instead.

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ENCode of Good Practices on Transparency in Monetary Policy

In 2006, Oxford Analytica (OA) published its report on monetary policy transparency in Russia, in which it awarded Russia the rating of "Enacted." The Central Bank of Russia (CBR) enjoys legal independence through the provisions of both the Law on the Central Bank of the Russian Federation and the Russian Constitution. Transparency of the central bank’s objectives and the public availability of information have increased over the years, but are still in need of improvement. At the time of the OA report, the CBR was in the process of shifting from its dual monetary objectives – inflation targeting and currency stability – to a unitary approach focused on inflation targeting. In its 2008 Article IV Consultation report, the IMF suggested that the CBR concentrate on enhancing its credibility with the public through a more thoroughgoing policy of disclosure with regard to its inflation-fighting activities. The 2009 version of this report, however, encouraged a more urgent focus on fighting inflation. A 2003 Financial Sector Stability Assessment by the IMF made several constructive suggestions to enhance Russia's monetary policy transparency, including greater disclosure of the assumptions underlying policy decisions, a more complete description of the relationship between the CBR and the Ministry of Finance, and the advance publication of the schedule for the meetings of the CBR's board of directors. The 2006 OA report noted that at the time of its publication, the CBR board still had not begun publishing the schedule of its meetings.

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ENCode of Good Practices on Transparency in Fiscal Policy

OA in its 2006 fiscal transparency report on Russia, rated the country's performance on this standard as "Enacted." The report noted Russia's steady progression toward greater fiscal transparency, but also mentioned areas where fiscal reforms have begun to show signs of flagging and even reversal in recent years. This was attributed, in part, to the country's heavy dependence on hydrocarbon revenues which, in the period leading up to the 2006 report, were high. OA expressed concerns that this would encourage politicians to ease back on reforms limiting off-budget and quasi-fiscal activities. OA further noted that the defense, law enforcement, and national security sectors continue to maintain budget opacity, and added that the number of state-owned entities and government holdings in the private sector further compromise the drive toward greater transparency. Fiscal reform at the subnational level has stalled. To address the potential fiscal risk represented by over-reliance on oil and gas revenues, Russia has created a stabilization fund, but the trend toward opacity in defense and related spending continues unchecked. The IMF's 2008 Article IV Consultation report noted that Russia intended to go forward with civil service and administrative reforms, adding that Russia's management and strategic planning for its two big sovereign wealth funds (SWFs), created out of the stabilization fund in 2008, is admirably transparent. The 2009 Article IV Consultation report observed that further delays in Russia's reform efforts were occasioned by the effects of the global economic crisis, which hit Russia very hard. One of the two SWFs was invested in the U.S. mortgage agencies Fannie Mae and Freddie Mac, both of which suffered severe damage in late 2008. The SWF Institute website discloses that the SWF in question has since been banned from investing in Fannie Mae and Freddie Mac, and also that the other SWF (the Reserve Fund) could run out of assets at some point in 2010.

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Institutional and Market Infrastructure

IDEffective Insolvency and Creditor Rights Systems

According to several reports issued by the European Bank for Reconstruction and Development (EBRD), Russia's insolvency regime has undergone significant reforms in recent years, with a number of new laws or amendments taking effect in 2008 and 2009. Authors R. Harmer and N. Cooper, consultants to the EBRD's 2003 Insolvency Laws Assessment Project, reviewed the content of the Russian insolvency law at that time - but not its practical implementation - and assigned a rating of "medium compliance" with international standards for effective insolvency and creditor rights systems. The EBRD's 2010 report, citing the results of a 2009 Insolvency Laws Assessment, reaffirms that rating, and observes that the May 2009 amendment of the Law on Insolvency should qualify Russia for a significant rating improvement. Nevertheless, the EBRD stresses that Russia still needs to make improvements in the area of implementation and enforcement. Despite the adoption of the new law, several areas still fall short of the international best practices. Filing requirements need to be changed to permit debtors to initiate proceedings early, and there should be a review of current prohibitions against opening a case when the debtor lacks the funds to meet administration costs. Stronger restraints on creditor actions are also required, and the provisions regarding disclosure of debtor assets and governing reorganization plans remain inadequate. Finally, the EBRD calls for improvements to the provisions that govern cross-border insolvencies. The Russian system, requiring that insolvency office holders such as trustees and administrators be members of a self-regulating organization, is found to raise potential problems, given that there are no generally recognized standards regarding the powers allocated to such organizations. The EBRD's 2010 report calls for greater rigidity in the licensing and regulatory system governing such office holders.

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IDInternational Financial Reporting Standards

In 1998, the Russian government designated International Financial Reporting Standards (IFRSs) as the main instrument for accounting reform. In July 2004, the Ministry of Finance (MoF) announced detailed plans for IFRS adoption in a paper entitled “Concept of Mid-Term Development of Accounting and Financial Reporting in the Russian Federation for the period 2004 - 2010.” According to the Concept, the two main directions of accounting reform in Russia entailed gradual introduction of IFRSs for consolidated accounts of different types of companies and elimination of differences between Russian standards and IFRSs. At the time of writing of this report, the planned IFRS adoption had not been implemented. A 2010 PricewaterhouseCoopers publication on IFRS convergence notes that IFRSs are, however, permitted in preparation of consolidated accounts of listed companies. Further, commercial banks are required to use IFRSs in preparation of annual standalone financial statements in addition to accounts prepared under Russian Generally Accepted Accounting Principles (GAAP). Publicly available information does not indicate any requirements to use IFRSs for preparation of consolidated accounts for banks. In general, sources on the subject point out that progress towards harmonization has been slow and Russian accounting standards remain a “summarized” version of the corresponding IFRSs. A 2010 IMF report attributes the delay in convergence, primarily, to the emphasis on compliance with tax requirements. Earlier, Howard Gethin in his 2006 article "Russia's Road to IFRS" noted that progress in accounting reform had been limited and a number of important laws, including the Federal Law on Accounting and the Federal Law on Consolidated Fincial Statements, were stalled in the Duma (Russian Parliament). It was anticipated that the law on consolidation will define the timing for the transition to IFRSs for different types of companies in Russia. As of January 2010, in an update provided in the Russian Collegium of Auditors Action Plan, the draft Law on Accounting had undergone a third reading and was still pending Duma approval. As for the Law on consolidation, as of May 2010, there is no indication that it has been finally approved.

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ENPrinciples of Corporate Governance

In 2004, the EBRD Corporate Governance Sector Assessment concluded that Russian corporate governance legislation was in "high compliance" with the Organization for Economic Cooperation and Development (OECD) Principles of Corporate Governance. These results, as reported in the EBRD 2009 Country Strategy report, were reiterated in a 2007 EBRD evaluation on the corporate governance related “laws on the books.” In addition to the law on the books, in 2002, the securities market regulator issued a Code of Corporate Governance Conduct, which is voluntary and is implemented on a "comply or explain" basis. The Code is based on the OECD principles of corporate governance. A 2010 draft law amending the Law on Joint Stock companies will introduce restrictions for cross holding of a company through its subsidiary structures. However, various sources point out that corruption and lack of corporate transparency pose significant challenges in Russia. In addition, a number of reports indicate that shareowner rights are not effectively implemented and that law enforcement remains inconsistent. There is also increasing state intervention in businesses further impeding implementation of shareholders rights. A 2004 Institute of International Finance report noted that equity culture in Russia has historically been weak, undermining minority shareholders' rights and called for a significant reform of the court system to secure minority shareholders' rights.

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IDInternational Standards on Auditing

The adoption of the Law on Audit in 2001, according to a 2006 article by Krikunov, was a major step towards achieving compliance with international auditing practices as it was the first piece of legislation to provide a legal foundation for auditing in Russia. Following the introduction of the law, the Russian Government, with the assistance of international organizations, has been issuing Russian Standards on Auditing (RSAs) which are based on the International Standards on Auditing (ISAs). However, as mentioned in a 2008 publication by Novikova, significant differences remain as the Russian standards are based on the older version of ISAs and there has been a considerable time lag in adoption of the new and revised international standards. In November 2006, the MoF released a road map titled "Bringing Federal Rules (Standards) on Auditing Activity in Compliance with International Standards on Auditing." The road map specified a timetable for the adoption of all ISAs as RSAs, including the incorporation of all subsequent revisions made to ISAs into Russian requirements. Per a 2010 Russian Collegium of Auditors Action Plan, in order to strengthen its commitment to ongoing convergence with ISAs, the Russian government approved a Federal Law on Auditing Activity in December 2008 requiring Russian standards to be established in line with ISAs. As of January 2010, 33 auditing standards had been approved. There is, however, no further information publicly available if the newly issued national standards are in line with the latest versions of ISAs as issued by the International Federation of Accountants.

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IDAnti-Money Laundering/Combating Terrorist Financing Standard

The Financial Action Task Force (FATF) conducted a joint mutual evaluation of Russia's Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) system against the FATF's 40 recommendations (R) and 9 special recommendations (SR). The findings were published in a June 2008 FATF report, in which the assessors conclude that Russia is compliant with 10 FATF recommendations and special recommendations; largely compliant with 13; partially compliant with 21; non-compliant with 3; and two recommendations are not applicable to Russia. More importantly, Russia is adjudged only partially compliant with two recommendations designated as core by the FATF, namely, R 5 (on customer due diligence, CDD) and SR IV (on suspicious transactions reporting linked with terrorism). A country should achieve a largely compliant or compliant rating for the core recommendations to be deemed as having in place a proper functioning AML/CFT regime. According to the 2008 mutual evaluation, although Russia has in place a legal framework to criminalize money laundering and terrorist financing, there are several areas where Russia's AML/CFT regime could be enhanced. Perhaps the most notable weakness is in the country's CDD regime as Russian law lacks clarity and effectiveness regarding beneficial ownership and ongoing due diligence requirements. Although recent reports, such as a 2010 publication from the U.S. Department of State, indicate that Russia has been proactively pursuing changes to address its money laundering and terrorism financing issues, there is no publicly available source indicating that the country has rectified the deficiencies identified in the FATF report. The FATF, in its 2008-2009 Annual Report, names Russia as one of the jurisdictions that have endorsed the FATF's 40+9 recommendations.

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IICore Principles for Systemically Important Payment Systems

The CBR oversees several interbank payment systems, both CBR-operated and private. According to both a 2003 IMF report and a 2003 CBR report, the CBR payment system is a distributed gross settlement system, made up of 78 regional branches. Of these, 59 use centralized payment processing with the remaining 19 using a decentralized method. In July 2007, a real time gross settlement (RTGS) system was launched. This RTGS system, called the Banking Electronic Speed Payment (BESP), became fully operational in December 2007. Recent CBR documents suggest that the BESP is one part of the overall CBR payment system. As stated in an undated report by the CBR, the BESP is a federally centralized system that performs RTGS for all participants in all locations. The BESP operates in parallel with the intraregional electronic settlement systems (the VER) and the interregional electronic settlement systems (the MER), and it is functionally independent from these systems. In its 2003 Financial System Stability Assessment, the IMF noted that the Russian authorities had made considerable progress in creating a legal regime within which payment systems could operate. In its 2005 Financial Stability Review, the CBR reported that its RTGS system (the BESP) was, at the time, being developed on the basis of international best practices. Nevertheless, there is insufficient information publicly available regarding Russia's compliance with the Committee on Payment and Settlement Systems' Core Principles for Systemically Important Payment Systems.

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Financial Regulation and Supervision

IDCore Principles for Effective Banking Supervision

A 2005 report by Michael Olsen published by the European Central Bank and citing the findings of a 2003 IMF FSSA, noted that the regulatory framework of the Russian banking sector, to a large extent, conformed with the 1997 Basel Core Principles (BCPs) for Effective Banking Supervision. The 2003 FSSA itself nonetheless noted that the legal framework, although broadly adequate, was in need of both legislative reforms and enhanced enforcement. A 2007-2008 FSSA Update to the 2003 assessment, conducted against the 2006 BCPs and published by the IMF in 2010, concludes that Russia's banking supervision has strengthened significantly since 2003. The supervisory staff is commended for being professional and of high quality. Further, numerous aspects of supervision have been improved from licensing to ongoing monitoring, internal controls, anti-money laundering and combating the financing of terrorism, and accounting. Weaknesses, however, remain, according to the IMF Update, in the areas of risk-based, consolidated supervision; loan classification and provisioning; acquisitions; and country and transfer risks. The Russian authorities have indicated a strong commitment to reforms and aligning their banking supervision practices with the BCPs. The Central Bank of the Russian Federation (CBR), the regulatory body, per its 2007 report, put forth a Letter 'On Recommendations by the Basel Committee on Banking Supervision.' A 2008 CBR report indicates that implementation of Basel II in Russia is actively underway. Further, the CBR has initiated risk-based supervision, appointed curators at systemically important banks to conduct ongoing oversight, and clarified advanced methodologies for capital calculation by banks under Basel II. Russia, per a 2009 PricewaterhouseCoopers report, is also planning to integrate financial sector supervision under one regulatory body.

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IDObjectives and Principles of Securities Regulation

A 2003 IMF's report assessing the Russian Federation’s observance of International Organization of Securities Commissions (IOSCO) principles noted that the regulatory framework for the securities regulation needed further strengthening. In a 2010 update of the 2003 assessment, the IMF concludes that the regulatory framework has been fortified. The EBRD's 2007 Securities Market Legislation Assessment of the Russian Federation, as reported in the 2009 EBRD Strategy Report for Russia, found Russia's securities markets legislation and regulation to be in "medium compliance" with IOSCO Principles, and “close to high compliance.” Regulation was deemed particularly strong in the area of self-regulatory organizations (SROs), and also in the areas of regulator’s powers, issuers and disclosure, collective investment schemes, market intermediaries, secondary market, accounting, and money laundering. Weaknesses were identified in the regulation of derivatives, and clearing and settlement. The assessment evaluated only the laws on the books and not their practical implementation. A subsequent survey gauging the enforcement environment and also cited in the 2009 EBRD report reveals a generally sound disclosure regime, with a notable weakness relating to the identity of beneficial ownership. The FFMS’s operational independence and investigative powers were also found wanting and led the EBRD to recommend prioritizing the enhancement of the regulator’s authority and capacity. Enforcement of regulations was found to be weak, too. The EBRD continues its presence in Russia to assist in capital market development and improvement in the legal and regulatory framework for securities supervision.

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IDInsurance Core Principles

The IMF's 2003 Financial System Stability Assessment noted that the regulatory and supervisory regime for insurance in Russia fell short of international best practices in many areas due to limitations in resources and an outdated legislative framework. The IMF report, which assessed Russia against the Insurance Core Principles (ICPs) adopted by the International Association of Insurance Supervisors (IAIS) in October 2000, evaluated the supervision of the Insurance Supervision Department (ISD) of the MoF. In March 2004, the ISD was replaced by the Federal Insurance Supervisory Service (FISS) as the main supervisory and regulatory authority for insurance companies and insurance brokers. Moreover, since the IMF assessment the Insurance Law has been amended several times, including in 2010. A 2010 update by the IMF of its 2003 assessment concludes that although the FISS’s supervision has improved considerably since 2003, the evolving insurance sector still faces significant challenges, including in the areas of risk-based solvency requirements and supervision, reinsurance, consumer protection, fit and proper criteria, and changes in control. The FISS also needs enhanced oversight powers and capacity to be an effective regulator. A 2009 EBRD report seconds the observation and declares that the agency will take systematic steps to help develop Russia’s insurance sector. In November 2008, the Russian government adopted the Draft Strategy for the Development of Insurance Sector in the Russian Federation for the period 2008-2012 with the aim of strengthening the legal framework for insurance supervision through a "gradual harmonization" with international standards, especially the ICPs. Also in the cards is the integration of financial sector supervision, unifying the FISS, the Central Bank of the Russian Federation, and the Federal Financial Markets Service under one centralized agency.

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Business Indicators

With an overall score of 7.07/12, Russia is progressing toward standard on the economic, legal, and political indicators that make up our Business Index. Russia can be considered a market-based economy but the government has recently increased the level of its intervention in certain key sectors, particularly the energy sector and mining. Although Russia is open to foreign investment and the law treats foreign and domestic capital equally, it provides for a number of exceptions that permit the government broad leeway to extend differential treatment to foreign investors. In addition, investments in 42 sectors require government approval before foreign investors may acquire controlling interests. Protections for intellectual property rights have improved over the last years, but more work needs to be done at all levels, from the legal framework to the expertise available in the court system and, as is true throughout the judicial system, enforcement. Violations of copyrights are rampant, although law enforcement targeting piracy has improved. Pharmaceutical test data remains unprotected but a draft law is currently under review. Corruption remains extensive, as reflected by the Russia’s very low ranking in Transparency International’s 2009 Corruption Perceptions Index.

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Global Indices & Quick Facts

Russia ranks between the 3rd and 5th quintile for the global indices that benchmark its political, economic, business, and human capital climates, as shown below. Russia scores lower than many of the post-communist countries, particularly in the indices having to do with economic and political freedoms. The Freedom House, for example, describes Russia as "Not Free," and points to a downward trend due to the government's intensified crackdown on NGOs. Likewise, Russia scores in the 3rd quintile of the Bertelsmann Transformation Index, which cites a lack of progress towards a fully functioning democracy. From 2007 to 2009, Russia fell from the 2nd to 3rd quintile in the Global Competitiveness Index, ranking 63rd overall. Corruption continues to be a problem. Russia is ranked in the 5th quintile in the Transparency International Corruption Perceptions Index, and the Heritage Foundation describes corruption as "pervasive" in its commentary on Freedom from Corruption.

Name Year Rank Score Quintile
Bertelsmann Transformation Status Index 2010 65/128 5.70/10 3
Heritage Foundation Economic Freedom Index 2010 143/179 50.3% 4
Economic Freedom of the World Index 2009 83/141 6.5/10 3
World Economic Forum Global Competitiveness Index 2009 63/133 4.15/7 3
Milken Institute Capital Access Index 2009 58/122 4.8/10 3
World Bank Ease of Doing Business Index 2009 120/183 N/A 4
UNDP Human Development Index 2009 71/177 0.82/1 2
Transparency International Corruption Perceptions Index 2009 146/180 2.2/12 5
Freedom House Index 2009 Not Free 5.5/7

Credit Ratings

BBB/Stable Fitch

Baa1/Stable Moody's

A-3/Stable Standard & Poor's

Macroeconomic Data

2009 GDP (Current Prices): 1254.7 billion USD (IMF)

2009 GDP (Per Capita): 8,874 USD (IMF)

2010 GDP (Growth Forecast): 1.5% (IMF)


2009 Inflation (CPI): 12.3% (IMF)

2008 Unemployment: 6.4% (CIA)


2008 Foreign Direct Investment

FDI (Inward): 70.3 billion USD (UNCTAD)

FDI (Outward): 52.40 billion USD (UNCTAD)


2007 Official Development Assistance

ODA (Received): N/A million USD (OECD)

ODA (Disbursed): N/A million USD (OECD)

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