CBR promises to “close loopholes” that allow to reduce the amount of blocked assets of “unfriendly” foreigners

(Added statements by the president of the R&D Center and the head of the NAUFOR board at the end of the text)

MOSCOW, May 16 (Reuters) – The Central Bank of Russia considers it inappropriate to allow market practices to reduce the volume of locked non-resident assets from “unfriendly” countries and will close the “loopholes” used for this purpose, Bank of Russia vice-chairman Philip Gabunia said.

Such transactions reduce the “exchange fund” of the Russian Federation in possible negotiations on the unblocking of Russian assets in the Western accounting infrastructure, believes the leadership of the CBR.

Non-residents from Russia’s “unfriendly” countries continued to shed Russian government securities in early 2023, selling OFZ at a discount of up to 75%, Reuters sources told Reuters. Thanks to such transactions, non-residents reduced their investments in OFZ by hundreds of billions of rubles.

Non-residents were forbidden to sell OFZ on the Russian market, so they got rid of the securities abroad, and the new owners then transferred them to the Russian accounting infrastructure.

In November 2022, securities worth 1.36 trillion rubles were “located” in this way, 94.4% of which were in OFZ, the CBR reported.

The regulator has limited the ability to dispose of the vast majority of “localized” securities purchased after March 1, 2022 and transferred to accounts in a Russian depository. Transactions in such securities are subject to a “semi-annual quarantine”.

Gabunia recalled that in early 2022 Russia was forced to close its current account in a very short time and limit the flow of capital.

“If this had not been done, we would be discussing something else now. So I sympathize with everyone, but unfortunately this is the reality at the moment. The barriers that were built very quickly by decrees of the President of the Russian Federation, somewhere something has not been taken into account, they are corrected and this situation will be protected,” Gabunia said, speaking at the NAUFOR conference.

“Furthermore, our position is very firm – we believe that it is wrong to allow or encourage, to encourage – in any way – to allow practices that reduce the amount of assets that non-residents from hostile countries own today by buying and manufacturing them here, and yes Next. And if we find any new loopholes that were not foreseen (by decrees), we will continue to close them,” Gabunia said.

“We do not accept these practices, they are important, especially for investors who have blocked assets, in order to improve the prospects of unblocking, exchange, etc. Therefore, we treat all works in this part as acting to the detriment of those who have suffered from due to sanctions, who got into the blocked shipments through various channels of foreign asset ownership,” he added.

The Central Bank is talking to the Ministry of Finance about a new stage of “localization” of securities settled in the Western infrastructure, said the first vice-president of the Central Bank, Vladimir Chistiukhin, the day before.

Speaking at the forum in the morning, the head of the Central Bank of Russia Elvira Nabiullina said that the possibility of exchanging “frozen” assets of Russian investors and non-residents remains, but “this is a political issue.”

Oleg Vyugin, head of the board of NAUFOR, said that the amount of foreign assets blocked by Russia and the similar amount of Russian assets “frozen” by sanctions in Western countries are approximately the same.

Representatives of the R&D Center did not disclose the number of foreigners’ assets blocked, but they undertook to prevent their reduction and to prevent the sale of “localized” securities.

“Yes, that’s the position, it’s not just about avoiding excessive volatility in the market, when a large volume of securities bought could come out of one grade or the other,” Nabiullina said.

“In the future, it is possible to exchange blocked shares for blocked shares … if the shares blocked by us from the other side through sales by Russian buyers enter our market, this is an exit from the lockdown, this is essentially a circumvention of these retaliatory freeze decisions that have been taken . Therefore, it is necessary to trace and show that these documents appeared before a certain time … Yes, this is the position, “said Nabiullina.

“It’s clear, so the market should take that into account,” added Vyugin. (Elena Fabrichnaya. Editor Dmitry Antonov)