A new procedure for conducting audits of issuers and participants in corporate relationships
Pepeliaev Group advises of a new procedure that is established in Regulation No. 210-IThe Central Bank of Russia’s Regulation No. 210-I dated 2 October 2023 “On the Central Bank of Russia’s procedure for auditing operations of issuers and participants in corporate relationships and on measures being taken with regard to such persons in the form of improvement notices when breaches of Russian legislation on joint stock companies and securities are identified” (the “Regulation”).
, came into force on 11 March and governs how the Central Bank of Russia audits issuers and participants in corporate relationships.
Grounds for conducting audits
According to the repealed Instruction No. 3795-UThe CBR’s Instruction No. 3795-U dated 13 September 2015 “On how the Central Bank of Russia audits operations of issuers and participants in corporate relationships and how the Central Bank of Russia applies other measures to protect the rights and legal interests of shareholders and investors”.
, audits of persons subject to supervision used to be conducted based on applications submitted to the Central Bank of Russia (the ‘CBR’) regarding possible violations of Russian legislation. The new Regulation additionally provides that audits may be conducted on general grounds further to the CBR performing its functions of supervision and oversight on the securities market.
The format of a remote audit with respect to certain information is preserved along with field audits of issuers’ operations and field audits at general shareholders meetings that the issuer conducts under a regime of personal attendance. The new Regulation does not provide for comprehensive remote audits.
Comment
It used to be possible to conduct comprehensive remote audits further to requests and applications. For these requests and applications to be examined, an audit had to be conducted of several lines of business of a supervised person and/or improvement notices (inquiries) had to be served on two or more of the supervised persons. Audits could also be conducted further to applications of law enforcement bodies.
Pursuant to the new procedure, remote audits must be conducted only with respect to specific types of information available to the CBR about potential offences. Field audits will now be conducted only if an application is received from a shareholder and/or investor, Russian law enforcement bodies or other state authorities, and such application contains information indicative of a potential infringement of rights and legal interests of shareholders and/or investors, and the examination of such application requires that documents (information) be analysed at the place where the defendant is located or these documents (information) are impossible to obtain without conducting a field audit.
Changes to the procedure for conducting a field audit
The field audit procedure is regulated in greater detail. During the audit the CBR’s officers may obtain information not only from the issuer’s own information systems, but also from the information systems of other legal entities that the issuer has engaged to perform its contractual obligations.
Changes have also been made to the limitation period for conducting a field tax audit, which has been increased to 6 months. The audit may take 3 months and may be extended for another three months if there are grounds for doing so.
The Regulation sets out other changes including changes relating to objections being filed with respect to the audit, as well as changes to provisions about preventing a field audit and to the procedure for formalising the audit results.
What to think about and what to do
We recommend that companies inform authorised persons about their rights and obligations during audits, about the rights and obligations of the CBR’s officers and how to liaise with the latter when audits are conducted.
Help from your adviser
Pepeliaev Group’s lawyers have expertise in statutory requirements for operations of participants in the securities market and for how to arrange corporate relationships within businesses that issue securities.
We are ready to provide a full-fledged support during audits of issuers and participants in corporate relationships, including legal assistance in preparing for an audit, advice on the audit procedure, and an analysis of the company’s operations in terms of how to comply with legislation on the securities market.