Russian central bank to take over financial watchdog role

MOSCOW Fri Dec 14, 2012 9:33am EST

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MOSCOW Dec 14 (Reuters) - Russia is set to bring regulation of financial markets and banks under one roof at the central bank, a move seen as part of a drive to transform Moscow into an international financial hub.

State news agencies quoted Finance Minister Anton Siluanov as saying on Friday that the government had agreed to integrate the Federal Service for Financial Markets (FFMS) into the central bank. The change will allow authorities to tighten supervision of the financial sector and make it possible for them to act more swiftly and effectively in a crisis.

"We have agreed that all the legislation specifying the functions of the central bank should be prepared and passed in the first half of 2013," Siluanov was quoted as saying.

"The integration of FFMS into the system of the central bank will be gradual over the next 1-1/2 to 2 years."

Central banks in other countries, which act as lenders of last resort, have also extended their supervisory functions after the 2008 financial crisis exposed regulatory weaknesses.

The Bank of England's Financial Policy Committee was created in 2011, and is expected to take responsibility for managing the financial sector from the Financial Services Authority.

Russia's Economy Ministry had opposed integrating the FFMS into the central bank, arguing it might lead to a conflict between monetary and supervisory interests within the bank.

"I think there is a broader understanding in the post-crisis world of the role of the central bank, and (that) they have to make trade-offs between financial stability and inflation ... it is just a part of the complex job of the central bank," said Jacob Nell, chief economist for Russia at Morgan Stanley.

Siluanov said the FFMS would be integrated in the second quarter of next year as a separate department, and would be headed by one of the central bank's deputy governors.

The reform comes shortly before Sergei Ignatyev's third term as central bank governor ends in June 2013. Russian media has reported that the government may tap Russia's former finance minister, Alexei Kudrin, to run the new super-regulator.

Kudrin, who has not broken with President Vladimir Putin despite being ousted from the finance portfolio in September 2011, has denied being offered the job.

Once the FFMS is fully integrated, the regulation and licensing of banks will be passed to the central bank committee for banking supervision, and for non-bank institutions to the committee for financial supervision. A new committee will be created to oversee financial institutions.

The monetary policy committee's mandate will be expanded to include financial stability and the regulation of Russia's financial infrastructure, according to central bank's draft plan. (Reporting by Oksana Kobzeva and Maya Dyakina; Editing by Catherine Evans)

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