the introduction of a new law means russian individual investors are now able to choose where to invest their hard-earned roubles
The Russian appetite for foreign investments is set to rise following the introduction of a new law allowing Russian residents to invest in foreign securities.
Dmitri Bogomazov, tax manager at PricewaterhouseCoopers, said: 'The new law should stimulate the growth of the financial services industry in Russia as individual investors will now have more options with what to do with their money.'
The law will give Russian residents a $75,000 limit on the amount that a person can invest abroad in a single year.
Previously, the majority of individual investors were unable to invest in foreign investments because they were subject to strict regulation. Investors had to apply for a licence from the Russian authorities in order to invest in foreign securities.
In addition, under the new law, premiums and payments in foreign currency under an insurance contract whose term does not exceed five years are no longer subject to approval by the Bank of Russia.
The law will increase opportunities for financial institutions to tap this underdeveloped market and offer new products. It is an important step towards liberalisation of currency controls in Russia and a boost to the development and global integration of the Russian financial services industry.
Bogomazov said: 'The law has only been introduced recently and its implementation is still in the development phase. Effectively, at the moment, investors are still unable to invest directly in a foreign security. Investors have to invest in domestic securities, or go to a bank and put the money in deposits. It is up to the banks how they invest the money and earn interest for their clients.
He continued: 'Retail banking is still rudimentary, and the Russians still remember the events of 1998, when many lost their savings in collapsed Russian banks and the value of the domestic stock market plunged. Clearly, there is an untapped demand for a variety of financial products from reputable providers.'
However, it is yet to be seen whether the law will be effective in practice. It is possible the law may be impeded by the Central Bank of Russia as it is the supervisory body and responsible for its implementation. The new law restrains the powers of the Central Bank of Russia in the area of currency and investment regulation and may be resented by some.
Bogomazov explained that the Central Bank of Russia is the supervisory body and it has the power to be able to make regulations for financials institutions. It is possible the Central Bank of Russia could make stricter regulations for foreign financial institutions. However, whether this happens or not is another question. Recently, there have been indications that the bank was taking a positive attitude towards important aspects of the new law, in line with more optimistic expectations.
The wording of the law is still unclear with regard to whether it eliminates existing ownership and fund repatriation restrictions.
It also requires investors to report their foreign investments to the tax authorities. The Russian public have traditionally been suspicious of the taxman. Investors will have to decide on the benefit of investing abroad against the ordeal of having to deal with the tax authorities.
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