Transcript of the beginning of the meeting:
Dmitry Medvedev: Good afternoon. Let’s begin with the government programme for the development of financial and insurance markets and the creation of an international financial centre. I have recently held several meetings on this issue, during which we discussed different approaches to developing financial and insurance markets and creating the international financial centre. Now the time has come to approve a government programme to ensure this.
Our goal is to create an efficient financial system that will radically improve investment activity in the country, be competitive in the global markets and use the necessary instruments in the real sector of the economy to ensure balanced economic growth based on innovation. There is considerable demand for instruments of transforming savings into investment on financial markets, although there are certain obstacles. I will speak briefly about several fundamental issues before addressing the essence of the matter.
First, the efforts to improve the stock market, the banking system and insurance mechanisms must be systemic and consistent. The issue has to do with the development of legal and administrative conditions for enhancing the liquidity of financial markets and increasing the number of participants in them, including by simplifying access for foreign investors, and by increasing the volume of the Russian free float. Our companies, primarily companies with state capital, must more actively use Russian venues for their IPOs, as we initially agreed, while at the same time keeping in mind the amount of funds they plan to attract through such offerings. So this is a dual task combining efforts to promote Russian venues and to ensure a successful sale of shares.
I’d like to stress that we must ensure compliance with the rights and interests of the clients of financial service providers, create a corresponding system of compensations and safeguards and promote new financial products, including derivatives. We must adjust our operation to global standards in terms of the availability, accuracy and completeness of information about the operation of our banks, investment funds and insurance companies. We must admit that we are not up to the mark in this respect so far. Our people and investors must be offered comfortable and clear conditions for investing their savings, including pension accruals. Otherwise we will not achieve our goal, which we often discuss, which is to attract long-term investment into the economy.
This will help us to moderate high risks, which are a natural element in the financial sphere, and to reduce market volatility. This should ultimately increase the level of potential investors’ trust, which is a crucial issue for us.
It is also important to promote feedback from financial market participants. So, one of the indicators of success of the government programme should be the opinion of professional market players about the quality of prudential control and government supervision.
We will employ international methods, including the recommendations of the OECD and the International Organisation of Securities Commissions (IOSCO), as well as international ratings. We have an ambitious goal, which we have mentioned more than once: to become one of the top 10 international financial centres by 2020 based on recognised ratings. Also, we must develop independent rating agencies in Russia, as it would be useful to make comparative surveys of non-state pension and investment funds, as well as insurance and asset management companies.
The second issue I’d like to mention concerns the system of regulating financial markets. It should be understandable and transparent to all market participants, as well as being stable. This is what representatives of foreign funds ask for during our meetings. This system should clearly delineate competence and responsibilities, and it should correspond to international standards and rules. At the same time, it should develop in accordance with global laws and be able to react flexibly to external influence. It must react to international financial development trends and, of course, be able to mitigate the risks of global financial instability which, as we know, are currently very high.
There is no ideal system of financial regulation, and maybe it is impossible to create it. But we must seek to minimise national and global financial challenges, taking into account the current situation in the country.
Third, a modern and effective system of regulation and a well-developed national financial market are essential conditions for establishing our financial centre. We have discussed its formation more than once. We also spoke about this at the January 29 meeting. I won’t speak about this in detail, because we discussed all aspects of this issue then. I’d like to repeat that our step-by-step plan, or the so called road map, should be endorsed in the near future and we must follow it strictly.
Fourth, the activities of the players on the insurance market should be also strictly regulated. Requirements as to the quality of insurance coverage should be established legally. Maybe this is the most difficult task because this market is not yet transparent enough. Common methods of assessing property risks for insurance purposes and the extent of damage done should be elaborated in cooperation with the expert community. The Russian market must have a full line of modern insurance products.
Regrettably, we don’t use some types of insurance , and this is why we have to resort constantly to government decisions in cases in which the entire civilised world does not do this, but directly pays money from the state budget in the event of losses caused by natural disasters, for example. We don’t spare money in such cases, but this is not a civilised approach. We must develop proper insurance products. The same applies to the insurance of harvests and in general to agricultural insurance. Unfortunately, we are developing this kind of insurance very slowly.
We are trying to create incentives for insuring our harvests and agricultural risks, but this is a two-way street. It is not enough for insurance companies or agricultural firms to insure harvests. We must encourage insurance parties to do this regularly, because very often insurance payments are not made for such losses, and this reduces people's interest in getting insurance.
We should develop new insurance services for low-income customers and simplify insurance procedures, including recovery of damages. We should make insurance services more accessible by introducing modern technology and putting them online. Naturally, our government programme is not limited to these measures. Let’s start working on this issue. I’m giving the floor to the Minister of Finance. Then I’d like Mr Sobyanin to speak, mostly on the financial centre. Please go ahead.
Anton Siluanov (Minister of Finance): Mr Medvedev, colleagues. The draft federal programme on the development of financial and insurance markets and the creation of the International Financial Centre has been prepared under the guidelines for the Government to 2018. These guidelines are aimed at improving the investment climate in Russia, attracting long-term investment, mobilising domestic investment resources, and increasing the role of long-term investment in the economy. First of all, we must create regulatory instruments for financial market players that would allow us not only to improve financial services for our customers but also create new competitive financial instruments and products.
All advanced countries are focusing their attention on control and supervision of their financial markets. Financial regulation is one of the key issues discussed at G20 meetings. G20 finance ministers will discuss financial regulation as one of the most important issues at their meeting this week.
The federal programme consists of two parts. The first part deals with legal aspects of financial regulation, and the second with control and supervision of the financial market. In the first part there are four groups of tasks. The first one is to expand financial instruments and develop financial infrastructure and the financial market. This is a key direction that would help us more effectively use pension savings for long-term investment. We are constantly discussing this issue at Government meetings and draft plans. Our goal is to encourage pension savings in a way that would benefit future pensioners and help the state receive long-term investment in the economy.
This calls for drafting a legal framework for the development of a fully funded life insurance system, special bank accounts designated for long-term private investment, broker infrastructure and so on. These are components of a healthy financial infrastructure, which should promote the development of Russia’s financial system.
Our second goal is to improve government regulation of financial markets. This involves building a system of prudential control over market players, comprehensive proposals to improve the regulation of non-government pension funds, improvement of the system of sanctions for financial market violations, broader participation of credit history bureaus, and changes in the insurance legislation.
As is known, the low level of financial market development in Russia is often a result of the absence of financial regulation standards similar to those in the banking sector. So our immediate goal would be to create the requisite institutional base, so that investment in the financial sector would be protected and overseen by a regulator and therefore attractive for domestic investors, both private and institutional.
The third goal is to improve the legal corporate relations framework: information disclosure, introducing consolidated supervision and reasoned judgment in the banking sector, development of a system of compensation for dealers/brokers, and uniform rules and requirements for insurers. Certain steps have already been taken toward this goal: some regulations have been drafted, especially with regard to consolidated supervision and reasoned judgment. We have definitely made some progress here together with the Central Bank.
The fourth goal is to build an international financial centre in Russia. To this end, we plan to bring Russian laws in conformity with the International Organisation of Securities Commissions (IOSCO) rules and insurance market regulation practices, as well as to integrate financial regulation in the Common Economic Space.
We have actually prepared roadmaps for building an international financial centre and are working on the required legislative solutions now.
The second part of the government programme, improving financial market supervision and control, involves the consolidation of oversight and control with a single supervisory body. According to you instructions, Mr Medvedev, we are to draft all the necessary legal acts for the establishment of a “megaregulator”, that is, a single financial regulator, by March 11. The proposals will be submitted to the Government by that date.
Unlike other state programmes, this one will be funded using money that is currently being used to support relevant executive bodies. Thus, there will be no need to allocate additional budget funds. The state programme aims to achieve important results in the way financial markets operate by 2020. Mr Medvedev, you have already identified some of them, so I will focus only on the three that we believe are the most important.
They include, first, an increase in the aggregate investment portfolio of private pension funds and universal life insurance from 2.6% of GDP today to 5.5% by 2020. The next indicator is an increase in the number of financial market participants who believe that the quality of government regulation and oversight has improved to a decent level. Thirty percent of respondents believe the quality is good. We set ourselves the goal of a 100% approval rating by 2020, which will require, first, that we bring our regulation and oversight as close as possible to international standards and, second, make them convenient for financial market participants.
The third important indicator will be when Russia joins the top ten countries in the global index of international financial centres. Today, we are at the 61st out of 70. Our goal is to join the top ten. Of course, we will need time to get there, but we believe that this is a good goal for the programme.
Creating in Russia a world-class financial centre and ensuring Russia's leading position on Eurasian financial markets should be the end result of this programme. I hope that you will support it.
Dmitry Medvedev: Thank you, Mr Siluanov. Mr Sobyanin (Sergei Sobyanin, Mayor of Moscow), please go ahead.
Sergei Sobyanin: Mr Medvedev, colleagues, the financial sector is the lifeblood of the Moscow economy with more than 60% of Russia’s banking assets located in our city. Developments in this sector greatly affect the city’s overall economic prosperity. Moreover, the financial sector is closely linked to other industries, such as information technology. Almost all major innovative tech companies are located in Moscow, and a large part of their work takes place in the financial sector. The financial sector provides a significant amount of their business.
Undoubtedly, investments in urban development, such as the construction of new housing, depend on the financial sector, interest rates and banks’ capabilities.
Financial centres, such as the International Financial Centre, are inconceivable without developed transport and utility infrastructure. The city has been investing unprecedented amounts of money in healthcare, education, transport and utility infrastructure in recent years.
Investment in transport doubled over the last few years. It will increase by another 33% next year. Of course, we cannot do this work without developing the Moscow Region and federal transport infrastructure.
Mr Medvedev, you issued a directive to draft a sub-programme to expand the Moscow transport hub under the state programme Expanding Russia’s Transport System. We are working on it along with the Ministry of Transport. We held a meeting to discuss this issue just yesterday. I would like you to hold a series of Government meetings to set the parameters of this sub-programme, so that we could get an idea of the investment capabilities and turnaround time for the priority areas of this programme. It’s been outlined, and decisions have already been made in many areas. However, in order for us to be able to implement it in full, we also need a system-wide decision and to put this sub-programme in place.
There are several other, perhaps routine issues that nevertheless need to be addressed. In particular, the programme submitted by the Ministry of Finance has a clause 1.2.7 on amendments to the legislation on comprehensive auto insurance that seek to protect victims' rights in traffic accidents. The deadline is set at December 2014.
I would like to see this process accelerated in order to comply with your directives, and make these changes in the coming months, especially given the fact that the Government has already drafted such a bill and I believe that it can be submitted to the State Duma.
Developing utility networks and connecting banking and other institutions to utilities is also important (we have already raised this issue), not only for the International Financial Centre, but the entire city as well.
We have teamed up with the Ministry of Energy to speed up the connection time and make administration in this area less complicated. But today, in accordance with applicable law, regional authorities have virtually no administrative tools that they can use with regard to grid companies. We have discussed this issue at a State Council meeting, and you have issued a directive on this. I would like to ask the Ministry of Regional Development and the Ministry of Energy to speed up these issues, hold a coordination meeting and come up with a clear policy on this issue. Otherwise we'll be left with nothing but the right to express our feelings about this without having any real levers of power.
One more issue related to the topic of the day. The last snowfall in Moscow aggravated the traffic in Moscow, particularly on the Ring Road Highway, where eighteen-wheelers brought the traffic to a halt.
On March 1, heavy-duty lorries won’t be allowed to use Moscow roads during the day, but the administrative law is fairly sparing in this regard. The penalty for such a violation is about 300 roubles. These fines are laughable and are unlikely to be adequate to resolve the task at hand. Therefore, I would like to ask you to support the initiative to toughen such administrative sanctions.
Overall, Moscow will continue to work with the Russian Government to implement the road maps discussed earlier.
Dmitry Medvedev: Thank you, Mr Sobyanin. Please, colleagues, does anyone want to comment on the financial centre? There’s a motion to second this proposal. Okay, I’ll say a few words at the end of the discussion.
As for Mr Sobyanin’s comments and proposals, I will issue an instruction to convene a meeting. Let's schedule consultations for the sub-programme, so as to determine the key parameters with regard to mandatory auto insurance, grid companies, and increasing administrative liabilities. I’d like to ask the Government to come up with proposals in order to finally resolve these issues.
Finally, I believe that the task of developing financial and insurance markets set forth in the programme is important for our country. We talk a lot about the need to develop the real sector of the economy, which is absolutely right, but the world cannot exist without finances, and we must have a place of our own in this world. So, when I hear people arguing that building a financial centre and our being in the ratings is nothing but project-mongering, I have one thing to say. He who does not set his sights high will find himself on the margins of history. So, we need to go ahead and do this. And we will.
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Briefings for journalists by Minister of Finance Anton Siluanov and Minister of Civil Defence, Emergencies and Disaster Relief Vladimir Puchkov
Anton Siluanov: Good afternoon, colleagues! Today, the Government meeting was held. The Government discussed the state programme aimed at developing the financial market and the financial sector. It is no secret that the situation on the Russian financial markets needs drastic changes because the financial market and the financial sector are underdeveloped. This is why investors are leaving for other destinations. This is why Russian shares and Russian enterprises with a public stake had been sold not in Moscow or in Russia, but rather on foreign platforms until recently. Why? Because Russia does not offer the same conditions that exist in foreign countries either to foreigners or to our potential investors. Therefore, our task is to create not only an international financial centre – this is a global task, of course – but just to ensure dignified work for our investors on our platform. This is the first point.
And the second... The task is to create a legal framework regulating the situation on our financial market, regulating those financial institutions that are currently operating on the financial market no worse than the way that commercial banks are regulated today. We have mentioned this because we face an important issue at the moment concerning sources of investment. By the way, we will discuss the issue of investment sources as the foundation for long-term economic growth at a G20 meeting.
Large institutional investors include pension funds and insurance companies. To provide for the sustainable development of these companies and to regulate their operation, it is necessary to adopt the relevant legislation. Unfortunately, very little has been done to this end in recent years. Thus, the Government has started to work on this issue now. The Government is creating a mega-regulator from the standpoint of regulating the oversight, a roadmap for a financial centre, a plan for improving the legal framework in this respect, and also adopting the relevant state programme. Therefore, we believe that the majority – practically all programmes – should be built precisely in this way. They must be based on the funds that are available in the budget and on the goals that each ministry considers a priority. So, the financial market's development is a priority in the Ministry of Finance's work.
Question: Mr Siluanov, the Prime Minister said that he believes it uncivilised to repay budget compensations to individuals who could insure their risks against disasters. Has this subject been discussed? What is your attitude towards this idea? Will this practice of repaying budget compensations be abolished and, if so, under what conditions?
Anton Siluanov: I think that he meant the following... Every year, we raise the issue of expanding the insurance area, especially in sectors that run risks concerning unforeseen situations, such as agriculture. Agriculture has good crops and bad crops, droughts and rainfalls. It is clear that this sector needs insurance. When we have a non-standard situation, such as the drought two years ago, agrarians come to the Ministry of Agriculture, and the latter asks for additional resources from the budget – for budget funds to cover farmers’ losses.
Colleagues, how many times do you want me to repeat the same thing over again? We have said this before – develop insurance. We are asking why enterprises have not insured their risks. They say: “We have insured them, but insurance companies do not pay us their liabilities under insurance contracts.” Why? “Here are our contracts.” As a result, farmers insure their risks on paper alone, and they do not receive insurance compensation. Meanwhile, some agricultural companies – the majority – do not insure their risks at all, although their activity faces some climatic risks. We have been discussing this subject for 10 years to no avail.
Thus, the Prime Minister was absolutely right to say that if you want to ensure the stability of your work, don't request budget support. This is an absolutely normal institution – the institution of insurance, which is operating all over the world. Unfortunately, it has not launched in practical terms in Russia... The issue that we are discussing is developing the market, creating an insurance market where, first of all, these will be stable organisations, second, cases without insurance compensation will not exist and, third, insurance market regulation will not be what we have today, but rather something similar to the Central Bank's regulation of commercial banks.
There is one more point. Suppose we were discussing payments to the families of miners who were injured or killed in an accident. We see both an insurance and a budget mechanism. The Prime Minister was not referring to this type of case because a mine owner must insure his miners by law. In this case, though, the state extends budget funds to the families of killed or injured miners. This is an absolutely normal situation.
Question: Earlier, you said that the Ministry of Finance and the Ministry of Labour will develop a formula for calculating pension liabilities and rights early this year. When will this work be concluded, and when will we be able to see this formula?
What will happen with the insurance contribution rate from 2014, because the rate will automatically equal 34% under the current law. Will you introduce changes to preserve the 30% rate? Are you discussing anything in this regard?
Anton Siluanov: Regarding 34%. In fact, the Government has already discussed this issue. We do not plan to increase the burden. This is not a tax burden, these are insurance contributions... This is also not a corporate tax burden. The Government has decided that the 30% rate of insurance contributions will not change. This is the first thing. Second, you asked when the formula will be ready. The formula is due to be prepared in late February-early March. I know that we have already received proposals. They are being examined by the Government – primarily by the Ministry of Labour and by the social sector. When the parameters of this formula are finalised, I think that the economic departments will look into this issue and we will be able to jointly discuss the result of this formula with the public.
Question: Continuing on this issue. In 2013, as far as I remember, the VEB's powers on managing pension funds end, and the Government is due to make a decision – will the VEB continue to manage pension funds, or will the Government hand these functions over to the Russian Financial Agency that is being created?
Anton Siluanov: No, I think that the VEB is managing the pension funds rather well, so it is not advisable to change anything in this regard.
Question: In terms of this programme, have you discussed conducting the privatisation of state companies exclusively on Russian platforms? Will the Government make such a decision?
Anton Siluanov: Of course, this is a priority for us. This year, privatisation deals will already take place on Russian platforms. The Government has taken this decision, and this is the right thing to do. And we should prepare our legislation for such privatisation deals as soon as possible. The State Duma will discuss a number of initiatives in this regard during the spring session. This year, 2013, should be an important one as far as promoting our financial market's development is concerned. Thank you.
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Moderator: Colleagues, the Government considered ways to provide relief following the emergency situation at the Vorkutinskaya mine today. Minister of Emergency Situations Vladimir Puchkov is here to answer your questions.
Question: Could you please tell us about the decisions with regard to paying compensation to the victims? How are things now?
Vladimir Puchkov: The emergency situation is due to a gas-air mixture explosion at the Vorkutinskaya mine. 241 miners were quickly brought to the surface by rescuers, and all the necessary preventive measures were taken. Three miners who were injured in the mine were treated by specialised paramilitary mine rescuers and raised to the surface. One of them was promptly brought to Moscow by air and is now being treated. He is in stable condition now and off the ventilation system. I believe he will fully recover within the next few days and go back to see his family and friends. Two miners are being treated at a hospital in Vorkuta. Unfortunately, one of them can’t be moved, so we brought in a specialised medical unit with the necessary medicines and they are taking care of him now. The second miner was moderately injured, and his condition is stable as well. Along with the Komi Republic authorities, we arranged a thorough check-up for all 241 miners, and one person has been sent to the hospital as a result. We will continue this work. In addition, we are providing practical help to families of the dead and injured. We have already started paying compensations from the republican budget and the mine’s budget.
Today, the Government supported the proposal to allocate 1 million roubles from the federal budget to each surviving family. Miners who sustained moderate or severe injuries will receive an additional 400,000 roubles each. Funeral money will be provided as well. All of these funds have been allocated in addition to the local compensations.
Our priority is to support the bereaved families and help the injured. We are working to gradually restore all production processes. Mine rescuers worked in difficult conditions, risking their lives and health as they were exposed to fumes, poor visibility and inoperable communications. However, all tasks have been completed and the situation is stable.
Since the miners who died lived in different parts of Russia, I took a decision today to take their bodies to the grave sites indicated by their relatives. This is a sensitive topic, so I would like to ask you to show some restraint and tact. All right? Thank you. I’m ready to answer your questions.
Question: You said that the one million roubles will go to the bereaved families, while those with medium and light injuries will receive 400,000 roubles as compensation. What about people with severe injuries?
Vladimir Puchkov: We pay 200,000 roubles to people with light injuries, but there are no light injuries in this case, only medium and severe. So, it’s up to 400,000 roubles.
Question: Up to 400,000 or 400,000?
Vladimir Puchkov: They will receive 400,000 roubles each. There is a mechanism where the commission makes appropriate decisions, and they automatically get their money. Please note that one million roubles is paid in addition from the republican budget by decision of the head of the Komi Republic. The mine authorities will also make some payments in accordance with the collective agreement and legal requirements.
Question: That adds up to 3 million roubles, correct?
Vladimir Puchkov: There will be more than that, because we are also covering funeral expenses. The mine will cover these expenses and pay other compensations based on the number of family members. We are now looking into each particular case. If there are children in need of support, we will provide such support. In particular, children who wish to enrol in educational institutions of the Ministry of Emergencies, will be able to do so based on a fast-track procedure. We are also working on ways to support large families.
In addition, we have reinforced our group in Vorkuta: two IL-76 airplanes delivered additional equipment and machinery. We have replenished all the material and technical resources that were used in providing relief in this critical emergency and created additional reserves, including materiel and special equipment that can be used to provide relief to Vorkuta and adjacent areas in the event of a major emergency.
Question: Are there plans to inspect other mines?
Vladimir Puchkov: Given what happened at the Vorkutinskaya mine, we recommend that the working group of the Government Commission implement, in due course, additional oversight and enforcement measures. All mines are overseen by Rostekhnadzor (Federal Service for Supervision of Environment, Technology and Nuclear Management), and I know that our colleagues routinely take such measures. In addition, we pursue additional programmes to improve the readiness of our paramilitary rescue units. In accordance with the legislation, we take additional steps along with the owners to build and reinforce auxiliary mine rescue teams. Members of such teams have been properly trained. They work in the mines and perform their duties, but, at the same time, they use their special training to carry out measures to prevent unfavourable processes and emergency situations. If needed, they can use their first aid skills to provide medical and other necessary assistance on site.
You can get an idea of their working conditions. Imagine, all the lights are out and we are 800 metres below ground. Everyone is down there working without any communication lines. They are moving forward step by step, restoring the normal air system and doing other things to preserve human life and health. All rescuers displayed courage, selflessness, and heroism. I can hardly find the words to convey my feelings for these guys. I did say something to the ones that I saw on site...
I met with the miners and the rescue workers. Please, once again, convey my condolences to the bereaved families. It is a great loss for all of us, because we lost young men who were full of energy and plans for the future. Therefore, we must do our best to ease the grief of their families. All right? Thank you all, good luck, and all the best.