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Russian regulatory actions initially aimed at softening the blow of sanctions has now become a full on battle to save the Russian rouble, while the government imposes retaliatory measures against foreign governments, businesses and individuals.
Much of the conversation around sanctions has focussed on what measures countries from around the world have initiated to put pressure on Russia. However, little has been said regarding measures that Russian regulators have implemented in tandem.
Using our Horizon Scanning tool, VIXIO has found that there were 22 payments regulatory updates in Russia in the month ending March 25, much of them related to sanctions imposed on Russia.
This compares with 97 updates throughout the whole of 2021 and 48 the year before, showing the scale of regulatory activity that sanctions and the invasion of Ukraine in general have brought.
Providing help
The initial response to sanctions by Russian regulators focused on providing support to firms that were affected.
Updates, such as Information on Support for Banks Subject to Foreign Sanctions or Measures Supporting Credit Institutions Due to Sanctions, promised to take actions to “ensure the stability and continuity of banks' operations” and “provide any necessary support to banks that have fallen under the sanctions of Western states”.
Specifically, the Russian central bank acted to shore up the Russian rouble, saying that all services in roubles and foreign currencies would go ahead as planned, in part helped by the dissolution of the macroprudential capital buffer for consumer lending in roubles and foreign currency, which released 733bn roubles (£5.8bn) back to banks. The central bank has also put in measures to ensure financial institutions have plans to mitigate the effects of sanctions.
Harsher measures
Increasingly, however, the Russian government has issued restrictive measures of its own to make it harder for Russian citizens to flee with their money, but also in retaliation against those imposing sanctions against the country.
This includes banning banks from charging commission to consumers wanting to exchange their money for dollars, which dis-incentivises financial firms from performing the exchange.
Russian citizens have been prohibited from accessing more than $10,000 from foreign currency accounts and a ban has been placed on the export of foreign currency, which includes the mandatory exchange of foreign currency to roubles for foreign trade contracts. This latter forced exchange will apply to 80 percent of total proceeds and retrospectively since the start of 2022.
Russia has also released its own counter-sanctions, prohibiting debt repayments, including credits, loans and financial instruments of more than 10m roubles (£80,000) by Russian citizens to legal persons from countries that have imposed sanctions.
More generally, the Russian government has also announced a consultation to amend the anti-money laundering/counter-terrorism financing (AML/CTF) law by including “extremist activities” for national security reasons. Although it is not totally clear what those intentions are, it could be used to silence any opposition to the conflict.
VIXIO’s Russia analyst Svetlana Atanasova said “Russia has a very expansive approach to what constitutes an extremist activity”, determined by Federal Law No. 114-FZ, which has been subject to multiple amendments over the years.
“Russia also typically uses the same legislation to ban the extremist activities of companies in multiple sectors, including Facebook/Meta and Instagram as well as opposition anti-corruption campaigns, which the authorities believe creates conditions for destabilising the socio-political situation in Russia,” she said.
According to Atanasova, “these draconian changes may be bad for payment firms in Russia as it will increase the scope and volume of AML monitoring that those companies are required to do and could lower business opportunities”.
Although there is hope that the conflict may be over soon, the regulatory impact looks set to last well into the year. In several instances captured by VIXIO, Russian authorities have set the measures listed above to last between six and nine months, suggesting that they are at least prepared to face a long conflict.
