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Bank of Russia to update pension reserve investment rules

The Bank of Russia is going to amend the requirements for pension reserve investment that will become effective on 1 January 2021. The updates are intended to limit investment risks and enhance the protection of the rights of depositors and members of non-governmental pension funds (NPFs), as well as help NPFs adjust to the new regulations given the consequences of the pandemic.

Specifically, the draft amendments to the relevant ordinance establish additional requirements for investment in perpetual bonds. In the case of this type of bonds, it is necessary to use the rating of an issue or a surety, and not of an issuer, since, depending on issue terms, the risk of investing in perpetual bonds may be higher compared to conventional bonds of the same issuer. Moreover, investment in perpetual bonds shall be included into the calculation of the limit of investment in a particular issuer’s shares.

In addition, the Bank of Russia proposes to shorten the list of foreign indices, the composition of which determines whether pension reserves may be invested in foreign shares.

Furthermore, in order to maintain the affordability of mortgage lending, a dedicated 5% limit will be allocated from 1 January 2021 for investing pension reserves in mortgage-backed bonds with high credit ratings. These securities will be excluded from the 10% limit for investment in higher-risk assets, while this limit will be gradually cut to 7% by 1 January 2025.

This draft postpones for one year the effective date of certain provisions of new regulations so as to mitigate the consequences of the pandemic and avoid asset fire sales. The reduction in concentration limits is rescheduled for 1 July 2021. The date when the limit encompasses higher-risk assets purchased before the implementation of the new rules is shifted to 1 January 2024.

The Bank of Russia welcomes your feedback on the draft ordinance from 17 through 30 June 2020.

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