Russia-EU Cooperation in the Financial Sector: Coordination as the Key to Increased Efficiency

Interview with Larisa Ignatova, Counsellor, Department of International Financial Affairs of the Ministry of Finance, Russian Federation

Moderator: Irina Busygina, Doctor of Political Science, Professor of the Comparative Politics Department, MGIMO University

Russia-EU relations are indisputably one of the key areas of priority for Russian foreign policy. I’d like to discuss a bit about the more practical elements of Russian-EU financial cooperation? Which issues with regards to financial regulation are of top priority today? With which Russian and European institutions does the Russian Ministry of Finance mainly collaborate?

Russia’s priorities lie in further developing relations in auditing, accounting, insurance services and banking, as well as improving efficiency and operations in each. In these four key regulatory areas, the Finance Ministry’s main partners within Russia include the Ministry for Economic Development, the Ministry of Foreign Affairs (which is responsible for coordination), the Federal Service for Financial Markets and the Central Bank of Russia. From the EU side, our main partners include the European Commission’s Directorate-General for Internal Market and Services (DG MARKT) and Directorate-General for Economic and Financial Affairs (ECFIN), the European Central Bank, the European Systemic Risk Board (ESRB), the bodies of the European System of Financial Supervisors (ESFS), the European Financial Reporting Advisory Group (EFRAG), the European Stability Mechanism, and the EC’s Directorate-General for Communication.

The Finance Ministry appears to have many partners indeed. How would you describe the evolution of your collaborative partnerships? Has there been any significant progress of note, or would you say instead that cooperation in general has been slowing down? Do you see any new forms or formats for cooperation on the horizon?

We have seen many changes ever since the 10 May 2005 Russia-EU Summit, when the “road maps” for financial cooperation were officially approved. In fact, much has been done since this event. Take for example the Russia-EU Finance and Macroeconomic Dialogue that was launched in 2006. The Dialogue’s chief objectives are to ensure stability in the financial system and maintain a robust financial sector, to provide effective consumer protection in the financial services sector by passing improved legislation and to more efficiently supervise and implement best practices in these areas of interest.

Most of the work has been accomplished at plenary meetings and within working groups. We now have four working groups within the Dialogue, whose agendas tackle the most pressing issues in financial sectors of both Russia and the EU, as well as reflect interests of both parties on these topics: (1) the Russia-EU Working Group on Accounting and Auditing (established in 2007 and proposed by the European Commission; its agenda was of utmost interest for the EU at the moment of its establishment); (2) the Russia-EU Working Group on Insurance (established in 2008 at the initiative of Russia); (3) the Russia-EU Working Group on Banking and Securities (introduced in 2010, this working group was initiated by Russia; the European Commission agreed to participate provided the Group’s agenda included topics related to securities markets); (4) the Russia-EU Working Group on Crisis exit strategies and Sustainable Development (set up in 2010 following a proposal by ECFIN; initially this working group was viewed as an alternative to the Banking Working Group).

Within the framework of the above Dialogue, we also held a workshop to discuss cyclicality in resource-based economies as well as a roundtable on the application of International Audit Standards. The latter was attended by representatives of the Russian Government and the local auditing industry, among others.

Would you call the Dialogue format an institutional solution?

Overall, the exchanges of information conducted within the Dialogues’ framework promote better understanding between the parties about the reforms each is pursuing, about further plans each has to develop their respective economic and financial systems, and about how to facilitate coordination between the sides. Learning about the EU’s experience through these consultations has helped us to draw up proposals to reform the Russian economic and financial system. More specifically, the Dialogue has helped us take lessons from the EU’s experience for use in developing proposals to implement the International Financial Reporting Standards (IFRS) in Russia, to help insure industrial risks against emergencies, to better regulate insurance, to ensure consumer protection in financial services, to supervise financial groups, to prevent insolvency, to conduct stress tests of financial institutions, to improve the system of compulsory pension insurance rating agencies regulation, and to improve crisis management measures.

The Dialogue’s format has also been useful for establishing direct contacts with EU officials, thereby giving Russian partners prompt access to relevant information. At every meeting, the European Commission has urged the parties to rely more extensively on multiple channels of communication. However, as our experience suggests, too much availability may sometimes become inconvenient for our officials, distracting them from their main duties and adding to their workload. This practice is not always fair or in the interests of both parties.

Additionally, this Dialogue has opened up additional opportunities for the parties to better coordinate their respective steps in implementing decisions or developing new measures with regards to leading world financial and economic forums.

What can you say about the Partnership for Modernisation? As far as I remember, there were great hopes for this initiative.

The Partnership for Modernisation is a practical extension of the Dialogues, which as the statement of the parties says, serves as an instrument for its implementation. However, there have been certain difficulties that have arisen, quite significant ones even. For example, when the Ministry of Finance proposed to the European Commission that its DG MARKT should join the partnership, the Commission responded that no resources were available to do so. The Ministry of Finance then unilaterally, and in the hope of facilitating investment, proposed three projects relating to implementing International Financial Reporting Standards (IFRS) in Russia. The IFRS promote transparency and better collection of company data, and thus enhance the attractiveness of the Russian economy and its financial markets. Having agreed to participate initially, the European Commission has not begun work on any of the proposed projects. Importantly, in 2012, the European Commission funded the Partnership, and then used this fact to implement those projects that aligned with its own vision of cooperation. Therefore timely responses by the relevant Russian authorities (in this case, the Ministry for Economic Development which is acting as the Partnership coordinator) in order to seek essential funding for initiatives have now also gained a political character. In its capacity as coordinator, the Russian Ministry for Economic Development has not offered any support for our proposals to facilitate investment through the implementation of the IFRS. The Ministry has even failed to properly update the Partnership’s website, which it hosts and is responsible for its maintenance, to reflect the Finance Ministry’s updated information on the Financial and Microeconomic Dialogue. These developments mean that the Russian ministries themselves should focus much more on better coordinating their contributions to Russia-EU cooperation initiatives. 

Which decisions or solutions would you advocate?

Given the on-going rotation within federal executive organs, it would be useful to hold regular events aimed at improving professional competency and briefing officials on updates in Russia-EU cooperation. In my view, it would also be helpful to improve the Partnership’s website to better coordinate participants of the Dialogues and the Partnership, on the condition that the website keeps offering very high-quality information. I have to admit that so far this website has not been up to par: the responsible officials have been asked to provide monthly updates, a not unreasonable requirement, but not all the information on the website has been prepared by the proper ministries or is even accurate.

In your opinion, is Russia sufficiently active in your relations with our European partners, in other words, does it come up with new proposals or initiatives? What has been your experience in this regard from drafting of the new partnership and cooperation agreement with the EU?

Our work on the draft of the new fundamental agreement seems to suggest that during the negotiation processes, you cannot fully rely on the proposals drawn up by your partners. It is essential to arrive very thoroughly prepared, develop your own position, and, coming into the new round of negotiations, not raise issues unless they have been agreed upon from your own side (among the relevant ministries).

In addition, as we discussed with our project, we have noticed attempts to impose certain issues on Russian authorities that fall outside the mandate issued by our government as well as to use the negotiation process to pass decisions that go beyond the limits of the WTO stipulations. To prevent this from happening again and to exclude unnecessary duplication of efforts, it is crucial to improve coordination in all aspects of Russia-EU cooperation.

In other words, improve coordination for increased efficiency.  Do you think it can be achieved?

I believe the Financial and Microeconomic Dialogue can be made more efficient if we draw up some final protocols reflecting, at the very least, the minimum commitments or establishing deadlines for our initiative. This would, of course, require additional effort. We also need to improve our coordination of the “Road Maps”, particularly in connection to overlapping issues.
We need Russian experts to focus on the significance and efficiency of various formats of cooperation and communications with our partners (including the Dialogues) in order to better promote Russian interests.

Do you think that EU’s practical experience in various may prove useful for Russia?

In order for us to rely on experiences of the EU, we need to study it more closely and examine the lessons from the point of view of their applicability to the Russian context.  We may do well by heeding the comments of the more experienced negotiators from the European Commission, for example that instead of suggesting many issues for discussion, it would be better to focus on the few most important ones. Also, it is not committing yourself but honouring your commitments to the best of your abilities that is most important.

Do you think the federal authorities pay enough attention to promoting cooperation with the EU?

It is unfortunate but with regards to our cooperation in general, we do not see sufficient appreciation by federal officials of the role and significance of the EU for Russia. This may be the reason for the lack of coordination between the EU agenda’s and other issues of bilateral or multilateral cooperation. In fact, the issues addressed by all of these formats are identical. For instance, the key issues for the G20 agenda today are the same as the Financial and Microeconomic Dialogue has had on its own agenda since its foundation in 2007.

The presented information reflects the personal opinions of Larisa Ignatova and may not coincide with the official position of the Russian Ministry of Finance.