Foreign currency acquisition limitations have been removed by the Central Bank.
The Central Bank of Russia announced a new policy on foreign investments on July 31, 2022, limiting investments from non-residents of "friendly" countries. This move comes amidst the geopolitical tensions following Russia's invasion of Ukraine.
The updated policy significantly curtails foreign investment from countries deemed unfriendly, particularly in the acquisition of equity shares and certain bonds issued by Russian entities. On the other hand, funds intended for investments in Russia, including those from foreign banks, can be credited to "In" type accounts.
The policy aligns with Russia's broader sanctions response and economic measures implemented since early 2022. For instance, US sanctions issued under Executive Order 14024 prohibit new transactions involving certain Russian debt and equity instruments. In response, Russia's Central Bank has implemented reciprocal measures to regulate and limit foreign access to its financial markets, especially targeting investors from non-friendly countries.
"Friendly countries" typically include those maintaining special economic or political ties with Russia, and residents of these countries may still engage in some investment activities in Russia, while non-residents from unfriendly countries face restrictions or prohibitions.
The July 31, 2022, directive introduced provisions that effectively banned or restricted foreign investments by non-residents from countries that are not recognized as friendly. The aim is to protect the Russian financial system from sanctions impacts and capital flight.
Russian President Vladimir Putin signed a decree on July 1, 2022, requiring the opening of "In" type accounts for investments. These accounts are not allowed for the withdrawal of cash, as per the decree. However, conversion operations, transfers between "In" type accounts, and the crediting and debiting of Russian securities are still allowed on these accounts.
Notably, the decree does not affect the existing assets accounted for on "S" type accounts, which are subject to the limited regime. These accounts are prevented from being used for investments under the Bank of Russia's limited regime.
In a recent amendment, investors from unfriendly countries can now use their "In" type accounts for investments in Russia, including transactions on Russian territory. However, it is still prohibited to make investments using funds credited to bank accounts that are not of type "In."
In summary, the July 31, 2022, Central Bank message reflects a protectionist stance toward foreign investments, allowing only residents of friendly countries to participate with fewer restrictions, and barring or limiting investments by non-residents from unfriendly nations to safeguard Russia's financial stability amid sanctions pressures and geopolitical conflict.
The new policy limits investments by non-residents from unfriendly countries, especially in the finance sector, such as the acquisition of equity shares and certain bonds issued by Russian entities. Despite the restrictions, funds intended for investments in Russia, including those from foreign banks, can be credited to "In" type accounts.
