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The procedure has been regulated for operations to be carried out on residents’ accounts (deposits) in foreign financial market institutions

Pepeliaev Group advises of the publication of the Bank of Russia's Instruction No. 5371-U dated 24 December 2019 "On cases of funds being credited to accounts (deposits) of residents opened in financial market institutions located outside the Russian Federation, and funds being debited from such accounts (deposits)".

The instruction provides that, in all cases, funds are credited to the accounts (deposits) of residents opened with foreign financial market institutions (other than banks) and funds are debited from such accounts (deposits) without restrictions.

The document comes into force starting from 17 April 2020.

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The regulation contained in the Bank of Russia's Instruction is as favourable for residents as it could be.

The fact that the provisions of the Law on currency regulation extend to accounts (deposits) of residents in foreign financial market institutions had created a risk that the operations on such accounts would be regulated in the same way as accounts in foreign banks are regulated in the Law in question. In other words, only some operations would be permitted or the opportunity to carry out operations would be made dependent on the country in which the relevant financial institution is located.

The Bank of Russia's Instruction allows operations to be carried out on accounts in foreign financial market institutions that are not banks under the previous regime, irrespective of the state in which the financial institution is located. All operations in relation to such accounts remain lawful. Thus, with respect to such accounts for residents, the only obligation to have been added is an obligation to file notifications and reports on the movement of funds.

Regulation in the period from 1 January 2020 to 17 April 2020

It was on 1 January 2020 that the provision came into force in the Law on currency regulation which stipulates that the Bank of Russia should adopt a regulation on the cases where funds are credited to and debited from accounts in foreign financial market institutions that are not banks[1]. And yet only now is the Bank of Russia's Instruction coming into force.

In the period when there was no regulatory act of the Bank of Russia, article 5(2) of the Law should have been applied. This rule provides that, if a procedure for carrying out currency transactions and the procedure for using accounts has not been established by the currency regulation authorities, then there are no restrictions on the carrying out of currency operations, the opening of accounts and the conduct of operations on accounts.

Thus, before 17 April 2020, operations on accounts (deposits) opened in foreign financial market institutions that are not banks could also be carried out without restrictions.

What to think about and what to do

The consummation of operations on accounts with foreign financial market institutions can, as before, entail risks, most notably in the following situations:

  • the use, which may not be obvious to the resident, of bank accounts to consummate some operations with the resident's investments, if the financial market institution is part of the same group as some bank or other;
  • funds being withdrawn from an account in a financial market institution into an account with a foreign bank, and there are subsequent operations on the bank account using such funds.

For a resident who is an individual, risks also arise if the bank is located in a state that does not undertake automated information exchange and is not a member state of the Eurasian Economic Union, while for a corporate resident there is risk with regard to a bank in any foreign jurisdiction.

Moreover, the Bank of Russia's Instruction does not cover broker accounts, depo accounts and other similar accounts opened in banks. Therefore, operations on such accounts of individuals with banks in the UK, USA and other jurisdictions that do not undertake automated information exchange continue to give rise to risks. So do operations on such accounts of corporate residents, irrespective of the jurisdiction of the foreign bank.

We recommend once more evaluating operations undertaken in relation to foreign accounts in banks and other financial market institutions in terms of whether such operations comply with currency legislation.

Help from your advisers

Pepeliaev Group's lawyers are ready to assist in identifying the risks associated with operations being consummated on foreign accounts. They will prepare and submit to the tax authorities notifications and reports on the movement of funds, as well as tax returns under the 3-NDFL form. In addition, they will represent taxpayers before tax authorities and provide other necessary legal support.



[1] Article 12(4) of Federal Law No. 173-FZ dated 10 December 2003 "On currency regulation and currency control", as amended by Federal Law No. 265-FZ dated 2 August 2019.

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