Banks, as well as various financial companies, promise unprecedented simplicity and safety of investments. Everyone wants to believe that quick and easy money is a reality. The modern Russian culture of investments of the average man in the street has not gone far from the 90s, where the appearance of attractive pyramids like MMM of the genius swindler Sergei Mavrodi became possible.
In the West, investment skills have been developed for centuries. The Amsterdam Stock Exchange was founded in 1602, the London Stock Exchange - 1695, the Philadelphia Stock Exchange in the USA - 1790, the New York Stock Exchange - 1817. And in Russia, the Moscow Exchange was finally formed only in 2011 after the merger of the MICEX (founded in 1992) and RTS (founded in 1995). We still have to learn and learn, so the role of the regulator, which would guide people on the right track, is especially important to this day. Here, as in any area, you need rules and someone who will follow them. Novye Izvestia found out who is responsible for the financial market and why investments in Russia have not yet become reliable and safe.
Went over the top...
Today Russians “drain” savings with enviable persistence, happily finding new rakes set up by banks, brokers or simply financial fraudsters. In 2008-2009, as in 2014-2015, people, seeing the rapid jumps in the ruble exchange rate, carried their savings to the foreign exchange market - Forex. Few people understood who and on what terms they trusted their money. In Russia, there was simply no regulatory framework for such trading; services were provided by foreign offshore companies. Most often, there were "kitchens" - companies that did not display transactions on any exchange, but simply worked against the client. Like a casino: what the customer lost, the company gained. The number of drained deposits had no account.
The Bank of Russia, which received the status of the regulator of the entire financial market in 2013, could not but respond to this situation, especially since its predecessor, the Federal Service for Financial Markets, solved this problem in almost no way. The Central Bank went so far with the regulation of the industry, which began in 2015, that it practically led to its complete liquidation. It turned out to be unprofitable to work legally, and now only 3 companies can officially operate in Russia, and the Prosecutor General's Office blocks the sites of all others represented by offshore companies. In September 2020 alone, 100 locks were made.
That is, there is essentially no Forex left in the country, and there is no hope for banks: after the Central Bank lowered the key rate to 4.25%, deposit rates went down. In November, the weighted average rate on deposits under 1 year amounted to 4.03%. And inflation is 4.9%. And this is only officially (the rise in food prices is often measured in tens of percent).
Free Cheese Advertising
Now it's time to drain deposits on legal exchanges, cryptocurrencies and IPOs.
In 2020 alone, more customers came to the Moscow Exchange than in all previous ones: 5 million accounts were opened, and their total number reached 8.8 million. The number of active accounts in which transactions are regularly conducted has more than tripled: In January 2021, 1.5 million people were already trading against 425 thousand in January 2020.
How can you resist when there are so many beautiful and promising advertisements around? It is enough to make a few clicks on your smartphone and you are an investor expecting a profit of several tens of percent! Everything is so easy and simple ... Some even promise to return the losses. Almost everyone, even the largest players in the market, resorts to various advertising tricks.
The leader of the Russian stock market, BCS World of Investments, is very creative in indicating the profitability of its products. In large print impressive figures are striking, and in small print - details: somewhere this is profitability in 1 year, somewhere in 3, and in one case it is "growth potential". So figure it out here.
Bank Tinkoff offers a unique share: it is ready to compensate for losses on a portfolio of shares of up to 100 thousand rubles, received in the first 30 days. The advertisement is large and bright, but it's not so easy to familiarize yourself with the detailed conditions of the promotion. They are simply not on the ad landing page. Description only in general terms. The chat support will send all the details to customers without any problems, for this you need to go a long way.
Another of the leaders in the services market on the stock market - Otkritie promises that 97% of their trading ideas are profitable. But he is silent about whether you can use them, or is it just from the category of describing the market situation, and what are the losses from these 3% unprofitable operations.
Seven nannies and a child
And what about the regulator? Formally, the Central Bank has nothing to do with this issue, although it is responsible for the financial sector. Inappropriate and unreliable advertising is the responsibility of the FAS. It is anti-monopoly agents who check advertising for compliance with reality. Small unreadable print is also their area of responsibility. On this indicator, questions may arise from Rospotrebnadzor. The Central Bank only supported the FAS on the issue of increasing fines for fine print to 1 million rubles. But this initiative was not developed. In 2016, Rospotrebnadzor continued to fine both Rosgosstrakh and VTB for 10 thousand rubles, which are ridiculous for such organizations. And now large companies face fines of only slightly more than 200 thousand rubles.
When several different departments come into play, responsibility is blurred along with this, and opportunities for dishonest advertisers expand. Recently, a large and respected Raiffeisen bank was caught in hiding commissions (alas, not by a supervisory authority, but by a simple client). Did you accidentally make a mistake in your ad? Doubt.
Private investor Dmitry Milin warns that the most important thing is commissions, which almost no one immediately warns about, but they can zero any profitability.
- You cannot trust commercials of banks and financial companies. Especially when advertising guaranteed income and sophisticated financial products. No one can guarantee that there will be no losses in the stock market. If you want to be convinced of this, ask what income managers received during the 2007-09 crisis, and when you are satisfied with this answer, ask how they "traded" the 1998 default.
Crises and sudden market failures are a reality that almost no one can handle. And most importantly: pay attention to the commissions that you have to pay for using these tools. Usually commissions make such instruments profitable only for the seller.
Karina Menyaylenko, a tax consultant at the Finance Group LLC, believes that the efforts of the Central Bank alone are not enough to eradicate unfair advertising. In her opinion, for this it is necessary to harmonize laws at a higher level.
- The norms of Russian legislation in terms of advertising and the activities of the Central Bank are not correlated, the laws are not directly interconnected. Therefore, it is now useless to talk about any specific obstacle to the spread of dubious advertising in relation to the activities of even large banks. The issue should be resolved at the federal level so as not to introduce misinformation into our society. There are many different advertisements in the open spaces of the media, which, alas, are not controlled by state bodies.
Investments are not for everyone
Since financial organizations simply hide banal commissions and describe mutual funds familiar to many in not obvious ways, what to talk about various structural and insurance products that are difficult for an unprepared person to understand (investment life insurance or endowment life insurance)! For banks, this is just a gold mine: presenting them as a good alternative to a deposit is not a problem. But there are plenty of pitfalls. You can bring losses to the client and not worry about it at all. When a completely different product is sold under the guise of one product, this is called misseling.
The problem is not new, but the Bank of Russia has been concerned about it relatively recently. At the end of last year, a bill aimed at protecting inexperienced investors was announced, and at the end of January was submitted to the State Duma. It must solve the problem of inaccurate advertising, misseling, and abuse of trust by inexperienced investors.
Under the new law, financial companies will have to test customers for product understanding, and if his skills do not match the proposed product, then he has the right to cancel orders. Also, companies will have to accompany products with passports, in which the main provisions will be spelled out in a couple of lines. The testing launch dates are postponed from April 1, 2022 to October 1, 2021.
Until the law is adopted, the Central Bank sends letters of recommendation to banks and brokers on the rules for selling financial products, which should be followed. How this happens, we were told in the Public Relations Department of the Bank of Russia (its' answer to the query of Novye Izvestia is at the disposal of the editors)
- In the last two months, the regulator issued several information letters, in which, in particular, market participants were advised, prior to the introduction of testing, to refrain from offering unqualified investors complex bonds, combined products, leveraged transactions, some insurance products with an investment component, etc.
Testing customers for their qualifications is great, but it doesn’t remove the risks of deception: professionals can cheat anyone by showing the product from the advantageous side. This is how the regulator explains it:
And for correct and high-quality informing of consumers, together with market participants, passports of financial products (key information documents, KIDs) are developed, which should inform the consumer in a simple and accessible form about the features and risks of a particular product or instrument before signing the contract. Taking into account international experience, a methodology for the "risk scale" (the so-called "traffic light") of a financial instrument is being developed, which can be used to inform investors about the proposed financial instrument.
True, experts note the untimely reaction of the Central Bank to the changing reality.
Igor Nikolayev, Director of the Institute for Strategic Analysis of the company "Financial and Accounting Consultants":
- The Central Bank needs to work proactively. You can react to what is happening, or you can warn, work ahead of the curve. Didn't the Central Bank know how things would be? With such a background, with such dynamics, with the fact that the population did not have any savings. When a country in such a state enters into a crisis, of course, people will buy into such offers.
In this case, the Central Bank will be able to do little with the financial well-being of citizens in general. But he can make sure that the difficult and so financial situation is not aggravated by the fact that dubious products will be offered. At least to recommend banks to be more honest, even that would be enough. But the Central Bank reacts as problems arise, not in advance.
In response to the request of Novye Izvestia, the Central Bank replied that one of the most important obstacles to a timely response is the resistance of professional market participants. That is, the same banks and brokers. The National Association of Securities Market Participants (NAUFOR) insists that, firstly, there is a conflict with other laws that oblige the broker to execute the order, and secondly, companies will not physically be able to make changes to their ordering systems. And recently, the head of VTB, Andrey Kostin, frightened the Central Bank by the fact that excessively strict regulation would force retail clients looking for alternatives: “Excessive restrictions may lead investors to look for an alternative, leave the Russian securities market and opt for less understandable, transparent and reliable products will go into gold, dollar, bitcoin or open accounts with foreign brokers, when working with which they are much less protected from a legal point of view".
Another reason for the delays that the Central Bank pointed out to us is the lengthy process of adopting laws. The amendments protecting inexperienced clients were submitted to the State Duma on January 21, the profile committee on financial markets requested feedback from various authorities by February 8, and the consideration of the bill is scheduled for March. And then the bill must go through three readings, be approved by the Federation Council ... As practice shows, laws can be in parliament for years.
According to Anatoly Aksakov, chairman of the State Duma Committee on the Financial Market, the processes can really drag out.
- Draft laws in the financial sphere are complex and therefore require coordination of the interests of all interested parties. The introduction of new technologies is always associated with risks, and in the financial sector it is also the risk of losing money. For example, in the last plenary week in 2020, the State Duma adopted a law aimed at expanding the possibilities of using the Unified Biometric System for remote provision of financial services.
The law is extremely important and relevant, since the development of remote identification for the provision of services is an obvious requirement of the time, especially given the ongoing coronavirus pandemic. However, the consideration of the law dragged on for two years due to numerous agreements with ministries and departments, since ensuring the collection of biometric personal data requires confidence in the maximum protection of citizens' personal data.
But we know that, if desired, bills can go through all the stages of approval very quickly. This, for example, was the case with the bill to raise the retirement age. And while the Central Bank can only issue recommendations, nothing will prevent banks, brokers and other management companies from “cutting” their clients. With cryptocurrencies, leaving for which Andrey Kostin makes an idea to be frightened with, you can only work on foreign platforms, and they carry great risks. Yes, Bitcoin has made a lot of people richer lately with its rise from 10 to 49 thousand dollars. But it can fall even faster, and the trading floor can close with your money. And there is nowhere to make a claim.
But such prospects are unlikely to force the head of the Central Bank Elvira Nabiullina to accelerate. With regard to cryptocurrencies, the Central Bank adheres to a simple and radical position: they are too dangerous, you cannot invest your money in them, which means there is nothing to regulate here.
The Public Relations Department of the Bank of Russia notes the following:
- The Bank of Russia has repeatedly spoken out about the risks associated with cryptocurrencies. They are not provided with anything, are not guaranteed by any state, their course is extremely volatile. Their appeal is highly risky for both consumers and investors.
The problem with the regulation of the financial market appeared together with our first exchange in 1992, and has not been resolved since then. As in any other sphere, horizontal ties are limp on both legs. Central Bank, State Duma, FAS, Rospotrebnadzor, various ministries - all have their own interests, rules, bureaucratic delays and indicators that must be achieved. The Central Bank complains that the Duma has been adopting laws for a long time, and banks are kicking hard and resisting changes in every possible way, in the Duma they complain that decision-making requires lengthy approvals with relevant departments, the FAS and Rospotrebnadzor, together, cannot deal with the problem of unfair advertising. Everything is as usual: responsibility is spread over too wide a circle of people. Therefore, the law of the jungle operates: every man for himself. So we recommend that you carefully study the detailed terms of the products, and not those that first of all fall out on the advertising banner, especially carefully study the commissions and not rely on easy money. Otherwise, all your capital may disappear without a trace. Those responsible for this will hardly be able to attract.