• ACI Russia

08/04/1998 12:27:22 Russia watchdog seeks new teeth on investor rights

By Brian Killen

MOSCOW, Aug 4 (Reuters) - Russia's main markets watchdog, the Federal

Securities Commission (FSC), said on Tuesday it was making new efforts to

improve the investment climate and was seeking extra powers to protect


FSC Chairman Dmitry Vasilyev told reporters the government had adopted a

programme for 1998-1999 that would meet demands of the International Monetary

Fund for improved financial reporting and transparency.

"The Russian government recognises that the protection of investors' rights

is a priority," Vasilyev said.

The programme, approved by the government on July 17, calls for changes to

existing laws and tighter market regulations.

Much of it has to be adopted by the opposition-dominated State Duma (lower

chamber of parliament), which is not due to return from its summer recess until

September 21 unless an emergency session is called earlier.

But Vasilyev was optimistic about winning Duma approval for proposed changes

to the tax system and to the criminal code.

"My position is one of cautious optimism," he said. "No matter what faction

Duma deputies belongs to, they still have to deal with investors."

At a time when emerging market investors are on the retreat from Asian

contagion, the government knows that it needs to fight hard for funds.

The IMF, which last month approved a major new credit package for Russia,

has given fresh impetus to the drive for greater investor protection and

financial transparency.

But President Boris Yeltsin last week rejected a law on foreign investment.

The law would have protected investors from possible future changes in tax and

other financial conditions, but it might have exempted foreigners from recent

tax increases.

"Boris Yeltsin has demonstrated that budget incomes are more important for

him than economic growth," the Kommersant Daily newspaper commented.

Vasilyev said most of the government's investment protection measures were

to be introduced this year. He added that the FSC had jurisdiction over market

regulatory issues and would publish new standards for information disclosure

this month.

He said the first task was to fill in gaps in existing legislation, then

improve observance and enforcement.

He said the programme called for changes in the criminal code that will for

the first time define violations such as asset-stripping and insider trading.

"This will surely strengthen the commission's position in protecting

investors' rights," he said.

The FSC is also seeking authority to fine those who flout the rules.

Vasilyev said this would allow more flexibility in punishing offenders than the

present system where retribution was either too lenient or too harsh.

The commission already has the power to annul planned issues of securities

or to strip dealers of their licences.

Proposed fines would be a modest 200-300 times the minimum monthly wage,

which is currently 83 roubles ($13.35), Vasilyev said. "We would like them to be

greater," he added.

Vasilyev said the new investor protection plan also called for partial

compensation to be paid out of a special fund to investors who lose money as a

result of a licensed market operator going bust.

((Moscow Newsroom, +7095 941-8520 moscow.newsroom@reuters.com))

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