Prohibitions and restrictions on transactions involving shares and equity interests in financial organisations

There is now a whole range of presidential edicts and directives imposing various prohibitions and restrictions on transactions involving shares and equity interests in financial organisations. Those prohibitions and restrictions vary according to the type of financial organisation.

The list of credit organisations in which shares/equity interests can be traded only with the permission of the President of Russia has been established

On 26 October 2022 the President of Russia signed Directive No. 357-rp[1] containing a list of Russian credit organisations in relation to which shares and equity interests (holdings) in their capital are prohibited from being traded pursuant to clause 2 e) of Presidential Edict No. 520 of 5 August 2022[2].

The list comprises 45 credit organisations, including banks — OTP Bank, UniCredit Bank, Citibank, Raiffeisenbank, OZON Bank, et al. — and non-bank credit organisations such as Western Union DP Vostok, Paypal Ru and Dengi.Mail.ru.

Under Edict No. 520, persons connected with unfriendly countries and persons controlled by them are prohibited, without special permission from the President of Russia, from making deals that would result directly or indirectly in the establishment, alteration, termination or encumbrance of rights of possession, use or disposal in shares/equity interests in such credit organisations or rights and obligations under joint activity agreements or other similar agreements.

Any such deals made without special permission from the President of Russia are void. However, Edict No. 520 does not lay down detailed procedures for obtaining special permissions.

The restrictions are in force until 31 December 2022 (the effective period may be extended multiple times by the President).

For more information on other provisions of Edict No. 520, see our alert here.

Transactions involving more than 1% of shares/equity interests in other credit organisations and a number of non-credit financial organisations (insurance organisations, private pension funds, microfinance companies, management companies of private pension funds or investment funds) are subject to permission from the Governmental Commission

Presidential Edict No. 737 of 15 October 2022[3] imposed a ban on transactions involving shares and equity interests in financial organisations without permission from the Governmental Commission. Permission is required for any transactions involving more than 1% of shares or equity interests if persons from unfriendly countries are participants in, or beneficiaries of, those transactions.

In the case of other credit organisation (not included in the list approved by Directive No. 357-rp and not covered by Edict No. 520) and a range of non-credit financial organisations (specifically, insurance organisations, private pension funds, microfinance companies, and management companies of private pensions funds or investment funds), transactions resulting directly or indirectly in the establishment, alteration or termination of rights of possession, use or disposal of more than 1% of the shares/equity interests in those financial organisations cannot be concluded without the approval of the Governmental Commission if any one or more of the parties to (beneficiaries of) the transactions are persons connected with unfriendly countries or persons controlled by them.

More details on other provisions of Edict No. 737 can likewise be found in our alert here.

Transactions involving shares/equity interests in other non-credit financial organisations

It will be recalled that transactions involving shares/equity interests in credit organisations and non-credit financial organisations are not subject to the restrictions laid down in Edict No. 618 of 8 September 2022[4] (as amended by clause 5 of Edict No. 737) by reason of a direct exception made in those Edicts. More details about Edict No. 618 can be found in our alert here.

At the same time, it should be noted that a list of types of non-credit financial organisations is laid down in Article 76.1 of Federal Law No. 86-FZ of 10 July 2022 "Concerning the Central Bank of the Russian Federation (Bank of Russia)". Besides insurance organisations, private pension funds, microfinance companies and management companies of private pension funds and investment funds (which fall within the scope of Edict No. 737 as indicated above), non-credit financial organisations also include, for example, professional participants in the securities market, pawnbrokers, credit consumer co-operatives, trade organisers, clearing houses, operators of financial platforms, investment platforms and information systems for the issue of digital financial assets, and certain others.

Given that Edict No. 618 does not apply to non-credit financial organisations, it may be concluded that there are currently no restrictions on transactions involving equity interests in the capital of the other non-credit financial organisations mentioned above where they exist in the form of LLCs.

As far as entities in the form of JSCs are concerned, it is essential to bear in mind the provisions of Presidential Edict No. 81 of 1 March 2022[5], which requires the approval of the Governmental Commission or the Bank of Russia to be obtained for transactions with persons from unfriendly states which give rise to ownership of securities.

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We recommend checking each transaction involving shares/equity interests in a financial organisation to determine whether special permission needs to be obtained from the President / Governmental Commission / Bank of Russia. It should be reiterated that approval may not be required — a person might not be considered unfriendly — if they are controlled by Russian persons or persons from friendly countries (subject to compliance with the conditions laid down in the Edicts).

We also recommend closely monitoring any new acts and clarifications that may be issued on this subject.

More details about restrictions and legislative changes can be found on our Telegram channel.