The Bank of Russia

The tasks and functions of the Bank of Russia are set by the
Constitution of the Russian Federation and Federal Law on the Central
Bank of the Russian Federation (Bank of Russia). The Bank of Russia’s
main objective is to protect the rouble and ensure its stability. The
Bank of Russia is also the sole issuing centre and the body of banking
regulation and supervision. Its main functions are formulated in Article
4 of the Federal Law on the Central Bank:

— in collaboration with the government of the Russian Federation, it
elaborates and implements a uniform national monetary policy designed to
protect the rouble and ensure its stability;

— it is the only issuer of cash and the organiser of its circulation;

— it is the creditor of last resort for credit organisations and
organises the refinancing system;

— it sets the settlement rules of the Russian Federation;

— it sets the rules of conducting banking operations and accounting and
the reporting rules for the banking system;

— it conducts state registration of credit organisations and issues and
revokes the licences of credit organisations and the organisations that
audit them;

— it supervises the activities of credit organisations;

— it registers the issue of securities by credit organisations in
accordance with federal laws;

— it conducts, on its own behalf or on behalf of the government of the
Russian Federation, all kinds of banking operations necessary for the
Central Bank’s implementation of its main duties;

— it conducts foreign exchange regulation, including operations to buy
and sell foreign exchange, and establishes the procedure for effecting
settlements with foreign countries;

— it organises and exercises foreign exchange control on its own and
through authorised banks in accordance with the laws of the Russian
Federation;

— it participates in making Russian Federation balance of payments
forecasts and organises the drafting of the Russian Federation’s balance
of payments;

— it analyses and forecasts the state of the Russian Federation’s
economy as a whole and by region, concerning specifically monetary,
credit, foreign exchange, financial and price relations, publishes the
corresponding materials and statistical data and performs other
functions in accordance with federal laws.

The Bank of Russia co-ordinates and regulates settlement relations in
Russia and establishes the rules, forms, deadlines and standards for
non-cash settlements obligatory for all legal entities and natural
persons. The forms of non-cash settlements are determined by the Civil
Code of the Russian Federation.

The principal forms of non-cash settlements today are payment orders
and, to a lesser extent, payment requests (for collection). Letters of
credit and cheques are used on a small scale.

A part of settlements is effected by legal entities and private
individuals using payment cards, which are gaining ever wider
acceptance.

The Bank of Russia is making efforts to ensure the effective and
uninterrupted functioning of the settlements system and enhance its
reliability.

Non-cash settlements are effectuated through correspondent accounts
opened with the Bank of Russia, correspondent accounts opened by credit
institutions with one another, correspondent accounts opened with
non-bank settlement credit institutions and through the system
ofintrabank settlements, using inter-branch settlement accounts.

Russian legislation accords the Bank of Russia a special place in the
country’s payments system. The Bank of Russia not only ensures general
guidance of the payments system and provides the methodology and
organisation of settlements, but also directly participates in this
system, effecting interbank settlements through its divisions.

The payments made through the Bank of Russia settlement network account
for a large part of the payments turnover.

Every participant in the settlements effected through the Bank of Russia
settlement network is awarded an identification code. The Bank of Russia
keeps the Russian Federation Bank Identification Code Directory (BIC
Directory), which contains the following data: the name of each credit
institution participating in settlements and its bank identification
code, correspondent account with the Bank of Russia and domicile.

The BIC Directory is regularly reviewed and updated.

The credit institutions located in the Russian Federation (resident
credit institutions) and having the banking licence of the Central Bank
of the Russian Federation open only one correspondent account with one
of the Bank of Russia institutions (a cash settlement centre or
operations department), which services them. The branches of credit
institutions may have correspondent subaccounts to implement settlements
and may not have such accounts. If they don’t, they effect settlements
through the correspondent account of their parent organisation or the
subaccount of another branch.

Overall, the Russian payments system comprises about 1,400 resident
credit institutions, more than 4,000 branches of credit institutions and
nearly 1,200 subdivisions of the settlement system and it is the
principal means of implementing the official monetary policy by the Bank
of Russia.

Non-cash settlements of clients of credit institutions and their
branches are effected from the bank accounts opened with these
institutions. In special cases, stipulated by the law, legal entities
may have accounts opened with Bank of Russia institutions.

Credit institutions and their branches with correspondent accounts and
subaccounts with the Bank of Russia effect settlements for their clients
for commodities, works and services and make tax and other compulsory
payments and their own income payments to the budget and payments to the
accounts of state extrabudgetary funds through the various divisions of
the Bank of Russia settlement network.

As for the settlements between clients of one credit institution
(branch), they are effected by writing off or entering funds to the
clients’ corresponding accounts, bypassing the correspondent account of
the credit institution (or its branch’s subaccount) opened with a Bank
of Russia institution.

Settlements between the cash settlement centres of the regional
divisions of the Bank of Russia, serviced by a single computer centre,
on transactions of credit institutions (or their branches) and on their
own transactions are effected through the accounts opened specially for
this purpose.

The correctness of settlements effected by the cash settlement centres
is confirmed by the concurrence of the initial and reply turnovers in
the process of confirmation, that is by comparing each reply entry with
the initial one.

Payments are effected if there are funds in the correspondent accounts
of credit institutions or subaccounts of their branches and within the
amount of these funds. If a credit institution (or its branch) has not
enough funds to meet all claims made on it, funds are written down from
its correspondent account or from the subaccount of its branch to effect
payments for its clients and its own payments in the order established
by the Civil Code of the Russian Federation. In this case, documents are
put into the file of unpaid settlement documents, attached to the
correspondent account of the credit institution or the subaccount of its
branch.

Settlements effected through the Bank of Russia settlement network are
based not only on paper, but also electronic payment documents. These
are the so-called intra- and interregional electronic settlements. The
latter are regulated by the Provisions on Inter-Regional Electronic
Settlements Effected through the Bank of Russia Settlement Network. The
exchange of electronic documents through the Bank of Russia settlement
network is regulated by the Provision on the Rules of Exchange of
Electronic Documents between the Bank of Russia, Credit Institutions
(Branches) and Other Clients of the Bank of Russia in Effecting
Settlements through the Bank of Russia Settlement Network, adopted in
March 1998.

The divisions of the Bank of Russia settlement network participate in
electronic settlements as the bodies registering and supervising
payments.

Credit institutions, their branches and other clients of the Bank of
Russia that have correspondent or other accounts with the divisions of
the Bank of Russia settlement network may use electronic settlements.
This helps accelerate money turnover and reduce the amount of funds in
settlements.

The term «electronic payment document» (EPD) is used in effecting
electronic settlements in the Bank of Russia settlement network. The EPD
is a document that serves as a legal basis for conducting operations
with the accounts of credit institutions (branches) and other clients of
the Bank of Russia, opened with a Bank of Russia institution, bearing an
electronic digital signature and having equal legal force, stipulated in
an agreement with the Bank of Russia, with paper based payment documents
signed by the authorised persons with their own hand and stamped.

At present the electronic payment documents presented for execution to a
Bank of Russia institution must contain the requisites in accordance
with which operations with accounts are conducted. Two kinds of EPD may
be exchanged:

—full-format EPD containing all requisites of a payment document,
including textual requisites;

-abndged-format EPD containing the requisites necessary for conducting
operations with accounts in a Bank of Russia institution.

The transfer of funds using fall-format EPD does not require
accompanying payment documents on paper, while the transfer of funds
using abndged-format EPD must be accompanied by an exchange of paper
based payment documents, filled out in accordance with the established
procedure.

During 1999 the Bank of Russia plans to phase in a paperless technology
in its settlement system, using full-format electronic payment documents
only in the exchange of electronic documents between Bank of Russia
institutions and between the Bank of Russia and credit institutions.

After January 1,1998, the Bank of Russia charges a fee for its
settlement services. Some kinds of settlement operations are conducted
by the Bank of Russia free of charge.

Interbank settlements effected through correspondent accounts opened by
credit institutions with one another play a part in the general payment
turnover.

The rules of settlement operations with correspondent accounts of credit
institutions opened with other credit institutions are formulated in the
Bank of Russia Provisions on Effecting Non-Cash Settlements by Credit
Institutions in the Russian Federation, which came into effect in 1998.

The operations conducted with correspondent accounts of correspondent
banks are divided into two types: operations to service clients and own
interbank operations.

The development of correspondent relations depends on various factors,
such as mutual payment flows, price and demand in the credit market, the
possibility of participating in trading in the regional government
securities markets and on currency exchanges and the risk levels.

Specifically, settlements in correspondent relations are effected with
credit institutions in CIS and other countries.

Settlements through clearing institutions are one of the means of
interbank settlements.

The development of clearing settlements depends on the financial
condition of credit institutions and the state of the money markets.
Eight settlement credit institutions have been granted permanent licence
as clearing houses.

Clearing operations are based on a clearing model requiring the
participating banks to make preliminary deposits in their accounts with
the clearing institution.

Nearly 2,000 credit institutions and their branches and other corporate
clients effect settlements through non-bank clearing institutions.

The Bank of Russia has a decisive role to play in elaborating the
principles of organising clearing operations and monitoring compliance
with these principles.

Intrabank settlements are gaining acceptance. They include settlements
between a head office of a credit institution and its branches and
between branches of a credit institution. The procedure for conducting
settlement operations with inter-branch settlement accounts in Russia is
established by the Bank of Russia Provisions on Conducting Non-Cash
Settlements by Credit Institutions in the Russian Federation.

A mid-term strategy for the development of Russia’s payments system was
elaborated in 1996. It sets forth as the main objectives of the reform
of the system further modernising settlements, upgrading banking
technologies, introducing new instruments of payment, raising the
standard of services provided to credit institutions and other
organisations and creating conditions for liquidity management.

To raise the banking technology of implementing settlements onto a
qualitatively new level, new methods are being developed, new rules and
regulations are being enforced, new technologies are being introduced
and new organisational principles are being established. Efforts are
also being made to accelerate the introduction of electronic documents
and build an advanced automated real-time system of settlements.

To this end, steps are being taken to determine the status and functions
of individual subsystems for the implementation of settlements, enable
credit institutions to manage their liquidity more accurately, develop
and introduce formats of electronic documents and settlement documents
on paper, stimulate the functioning of clearing institutions, improve
conditions for the introduction of bank payment cards in order to reduce
the amount of cash in circulation, and elaborate regulatory rules in
these areas.

The Bank of Russia division responsible for ensuring methodologically
and organisationally the efficient and uninterrupted functioning of the
national payments system is the Methodology and Organisation of
Settlements Department.

In accordance with its Statute, the Department ensures the
implementation of the main tasks involved in developing and upgrading
the methods of non-cash payments in the Russian Federation, elaborating
a concept of development of the Bank of Russia payments system and
organising supervision of the Bank of Russia settlement divisions and
other settlement systems.

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