Meeting on the International Financial Centre location
29 january 2013
Transcript of the beginning of the meeting:
Dmitry Medvedev: Today, we’ll once again discuss our idea of establishing the International Financial Centre. As we have already agreed, let’s discuss the solution of infrastructure issues and specific options for the Financial Centre’s location, and not just system related issues linked with the drafting of basic regulatory documents and organisational issues, because this is probably no less important than those decisions with regard to legal and organisational infrastructure.
To distract ourselves from the current agenda a bit, then I’ll say that the Davos forum was held last week, and some of you present here attended the event. As usual, the forum passed in a rather energetic manner. Generally speaking, the business community remains interested in Russia. And, of course, the extent to which we can exploit this interest, our ability to make our national financial system more competitive, to increase the role of the rouble in international financial settlements and to stake our overall claims in the financial markets depend on our joint work.
The International Financial Centre will be used to attract and allocate Russian and foreign investment capital. This can be accomplished by involving more investors, through the complete integration on the financial markets and by creating a favourable regulatory environment. In effect, you and I have been addressing these issues over the past few years. I cannot say that we have succeeded in every area. But at any rate a basic regulatory environment and an organisational environment are, on the whole, currently evolving. Right now, we must pool our law-making efforts and our efforts to create the required structural facilities and to address an entire range of organisational tasks.
In the near future, this February, the Government will examine projects for the Development of Financial and Insurance Markets and the Establishment of the International Financial Centre state programme. The Government will also review the road map to establish the International Financial Centre and to improve the financial climate. We’ll have to create an effective and stable regulatory environment, which will encourage the creation and development of modern financial products and services for all investors, and which will ensure high standards of corporate governance and, of course, the protection of investor property rights and interests. International events show that this remains an extremely important objective. They are telling us about this, which means that not everything is okay in Russia.
Apart from institutional conditions, the physical infrastructure of the centre is also quite important. This includes the location of specific facilities and the way various facilities and banks will be inter-connected. Of course, this also includes urban-development solutions and utility mains and lots more. We must think about the location of the main International Financial Centre facilities. Various options, which should be carefully studied, are possible here. We could do nothing and confine ourselves to the available facilities.
But we must consider the fact that Moscow is a huge city and that various agencies and institutions, primarily banks and consulting companies, are located so far apart and are spread over the whole area. This is a difficult but probably feasible solution. There are other options we have already talked about such as placing IFC institutions close to each other, thus simplifying the building of the necessary infrastructure. In any case, we need to take the following aspects into account: to review the implementation plans of the project and their terms, to define the finance sources and to assess the opportunity to use investment money. We also need to coordinate the cooperation of the federal, regional and local governments, and finally think about how the whole idea is supposed to work. In any case, I would like to return to the issues we began with. To attract investors to our IFC, it needs to be attractive to bankers, to high-skilled experts (to a large extent those living abroad), and of course, for us to work there conveniently.
Let’s discuss these issues and start with the current situation and what has already been done. Please, Mr Voloshin (Alexander Voloshin, Head of the Working Group for Establishing an International Financial Centre in Russia under the Presidential Council for the Development of the Russian Financial Markets), take the floor.
Alexander Voloshin: Mr Medvedev, ladies and gentlemen. Our work to create the International Financial Centre in Moscow is aimed at achieving three major goals. I would describe them as follows: the first goal is to develop proper financial infrastructure and adequate financial regulation – this is being largely done by our working group. The second goal is to create an adequate urban environment and infrastructure. The third goal is to foster a favourable investment climate. Clearly, these three goals require different efforts – some of them can be achieved fairly quickly whereas others may require more time. Still others may also require considerable investments. This is why we have outlined three major goals.
As for the first goal – financial infrastructure and financial regulation – we made significant progress last year. We now have legislation regarding the Central Depository and a new law on clearing transactions that has resolved many past problems. Problems with insider trade and insider information have been addressed through legislation as well. On New Year’s Eve we adopted a large package of amendments that have considerably simplified the issuing of securities. As for security market infrastructure, we have merged two major stock exchanges and are now launching the Central Depository, which has began activities already. This year our stock exchanges will switch to the T+ system in line with established international practice.
I’d like to say in conclusion that recently we came to grips with the formation of a single financial regulator. This represents significant progress. Mr Medvedev, both you and the President paid a great deal of attention to analysing these issues and decision-making.
Today we suggest discussing the second goal – certain aspects of developing adequate urban infrastructure. When we first began this work, our experts compared our urban infrastructure with that of foreign cities and identified numerous major problems. Some of the main ones were transport problems, lack of hotels with average rates, a shortage of legal and quality rental property, a shortage of office space and the lack of multi-lingual navigational aids (the city is not very hospitable to foreigners) and problems involved in the teaching of foreign languages to medical personnel in line with international standards. This is far from a complete list of issues that we must resolve to create a favourable environment in Moscow for the International Financial Centre. Some of these issues must be resolved in Moscow as a whole and probably even in the entire Central Region, while others can be resolved through localisation – densely locating financial institutions in the city. In fact, has been the international practice.
I’d like to emphasise once again that the International Financial Centre is not a developer’s project. The main goal is to create proper financial infrastructure and adequate financial regulation, but experience shows that the city and the urban environment are important factors. If we turn to foreign experience… Even in those cities where historical centres like the City of London formed so long ago that nobody even recalls when or how it happened exactly. To this day the Queen still has to wait for the Lord Mayor’s permission to enter the City.
Nonetheless, about 20 years ago London started building a second financial and business centre at Canary Wharf – former dockyards. Now it is comparable to the City. It is even more dynamic than the City and many think its location is better. What did the Brits do to attract financial institutions and businesses in general to Canary Wharf?
There were three factors to their success. First, they granted tax incentives, mostly on the profit tax, to those who relocated their headquarters to the new district. Second, they established regulators there. The Financial Services Authority (FSA) also moved to Canary Wharf. And last but not least the Brits extended their underground to the new district. This was a turning point after which the finance industry started actively moving to Canary Wharf. It is becoming increasingly clear why. The finance industry is becoming increasingly high-tech and people working in the financial district are technical experts who arrive on the tube – they are not tycoons in Mercedes. All stock exchanges consist, for the most part, of software developers and technical experts. Therefore, such districts should be easily accessible. To repeat, these were the three factors of success.
In addition to the City, London built a new financial district that helped strengthen it as an international financial centre. Likewise, a new financial centre was built in Frankfurt and has now become the biggest one on mainland Europe. Not everyone knows that Deutsche Börse, the largest stock exchange in Germany and mainland Europe, is located in a small town a 10-15 minute drive from Frankfurt. The old building of the stock exchange is located in Frankfurt and is used for ceremonies and events. Its new, bigger building is in a small town with tax incentives, and financial and investment businesses, auditing firms and the like are actively moving there. It is clear that the governments are trying to enhance the appeal of both historic financial centres, such as London, and new ones, such as Frankfurt, in order to concentrate financial businesses there. It would be useful for us to have this in mind when thinking of what we should do in this sphere.
Today we will see one of the potential financial districts in Rublyovo-Arkhangelskoye. This is indeed a nice place – there are few beautiful places so close to Moscow. It has its own pluses – it is connected to the City by a modern motorway and if it becomes a financial district, it will further encourage the development of the City. Importantly, in this case the City will develop not towards the centre of Moscow but away from it, which may form a convenient link for the finance industry.
Obviously, it would be wrong to say that the International Financial Centre in Moscow will be located in this exact location. It cannot be squeezed into one place in Moscow – it will probably be located… A huge number of investment and financial institutions are scattered all over London despite the City and Canary Wharf. We cannot tell Goldman Sachs or Morgan Stanley where they should have their offices – that’s up to them. But we can create convenient conditions and different incentives to attract them there.
While discussing this project we should think about forming the prerequisites to make doing business comfortable. This encompasses an extensive range of serious issues, Mr Medvedev. We are hardly prepared to take a final decision today. But it is important to outline a direction for discussing this range of issues. It would be useful to create a commission or a working group under you, and this working group would consider all these issues comprehensively. Of course, Sberbank can build a nice centre here, in Rublyovo-Arkhangelskoye, and knowing Mr Gref (German Gref – Sberbank President and Board Chairman), I’m sure it will be high-quality and beautiful. But we should create conditions to make people want to go there later. People will go there if there is something that draws them. While discussing this project, its alternatives, or other projects, we should remember that the state should create a set of cakes [enticements] for those whom we want to attract.
Dmitry Medvedev: Cakes or carrots?
Let’s do it this way. I agree with what I’ve heard, I agree that we should consider all options and create a group from our commission, our structure, which works on integrated government service centres, in order to weigh the pros and cons for every option, without exclusion, on developing the infrastructure of the International Financial Centre. I agree with Mr Voloshin (Alexander Voloshin): this centre will never be a single location because Moscow is Moscow all the same. However, there are advantages of densely clustering banks, consulting firms, and business infrastructure, and there are probably some disadvantages of this. We should consider all this and decide whether we should create a relevant structure and where.
Our colleagues are going to unveil one option. Let’s discuss it as well as other options, and then take a decision (I have begun with this point). Meanwhile, we should bear in mind that the International Financial Centre is not only a set of regulatory acts and managerial decisions but also an environment. And we should think and arrive at final decisions as to where this environment should take root – in Old Moscow or in New Moscow.
Let’s continue our work, I’ll issue the necessary instruction. Let’s discuss possible options.