Russian sanctions: European developments in the area of financial services

In the light of the ongoing Russian invasion of Ukraine, the European Union (EU) Member States adopted a series of new sanctions against Russia. Both the scope, complexity and the expedited pace of adoption of the new restrictive measures is unprecedented, which can make it challenging for financial and non-financial institutions to keep a track of. The following note seeks to provide a short overview of the current European financial services sanctions against Russia, mindful that these may soon be subject to further changes: 

• Restrictions on provision of investment services: Member States agreed to a further expansion of existing restrictions concerning  provision of investment services to targeted entities in Russia, as well as a prohibition of the listing and provision of services in relation to shares of Russian state-owned entities on EU trading venues. By way of background, Council Regulation (EU) No 833/2014 defines “investment services” as: (i) reception and transmission of orders in relation to one or more financial instruments; (ii) execution of orders on behalf of clients; (iii) dealing on own account; (iv) portfolio management; (v) investment advice; (vi) underwriting of financial instruments and/or placing of financial instruments on a firm commitment basis; (vii) placing of financial instruments without a firm commitment basis; and (viii) any service in relation to the admission to trading on a regulated market or trading on a multilateral trading facility. 

According to the updated European sanctions regime, it is prohibited to directly or indirectly purchase, sell, provide investment services for or assistance in the issuance of, or otherwise deal with certain  transferable securities and money-market instruments issued by: 

• a major credit institution, or other major institution having an explicit mandate to promote competitiveness of the Russian economy, its diversification and encouragement of investment, established in Russia with over 50 % public ownership or control as of 1 August 2014. This includes: Sberbank, VTB Bank, Gazprombank, VEB, Rosselkhozbank
• a legal person, entity or body established outside the Union whose proprietary rights are directly or indirectly owned for more than 50% by an entity listed above; or
• a legal person, entity or body acting on behalf or at the direction of an entity referred to in the above points. 

It is also prohibited to directly or indirectly, purchase, sell, provide investment services for or assistance in the issuance of, or otherwise deal with transferable securities and money-market instruments issued after 12 April 2022 by:

• any major credit institution, or other institution with over 50% public ownership or control as of 26 February 2022 or any other credit institution having a significant role in supporting the activities of Russia, its government or the Central Bank and established in Russia. This includes: Alfa Bank; Bank Otkritie; Bank Rossiya; and Promsvyazbank; or 
• a legal person, entity or body established outside the Union whose proprietary rights are directly or indirectly owned for more than 50 % by an entity listed above; or 
• a legal person, entity or body acting on behalf or at the direction of an entity referred to either of the above points. 

Similar investment services restrictions also apply to dealings with Russian legal persons, entities or bodies established in Russia engaged in the conception, production, sales or export of military equipment or services, as well as certain state-owned entities (Almaz-Antey; Kamaz; Novorossiysk Commercial Sea Port; Rostec (Russian Technologies State Corporation); Russian Railways; JSC PO Sevmash; Sovcomflot; and United Shipbuilding Corporation). 

For completeness, for the purpose of the European sanctions regime, the notion of “transferable securities” involves classes of securities which are negotiable on the capital market, with the exception of instruments of payment and including: (i) shares in companies and other securities equivalent to shares in companies, partnerships or other entities, and depositary receipts in respect of shares, (ii) bonds or other forms of securitised debt, including depositary receipts in respect of such securities, (iii) any other securities giving the right to acquire or sell any such transferable securities or giving rise to a cash settlement determined by reference to transferable securities. Importantly, the European Commission recently clarified that the scope of “transferable securities” also extends to crypto-assets.  

• Restrictions on provision of new loans or credit: Under the revised framework it is prohibited to directly or indirectly make or be part of any arrangement to make new loans or credit with a maturity exceeding 30 days to any designated entity mentioned above. 
• Restrictions on accepting deposits: The expanded measures prohibit, subject to limited exemptions, the acceptance of any deposits from Russian nationals or natural persons residing in Russia, or legal persons, entities or bodies established in Russia, if the total value of deposits of the natural or legal person, entity or body per credit institution exceeds 100 000 EUR. 
• Prohibition of provision of services by European CSDs: The European measures prohibit EU-established central securities depositories (CSDs) to provide any services as defined in the Annex of Regulation (EU) No 909/2014 (CSDR) for transferable securities issued after 12 April 2022 to any Russian national or natural person residing in Russia or any legal person, entity or body established in Russia. This includes prohibition of core CSD services (notary service, central maintenance service and settlement service), as well as non-banking-type ancillary services of CSDs that do not entail credit or liquidity risks and banking-type ancillary services. 
• Prohibition of selling Euro-denominated transferable securities: The European measures put restrictions on selling euro denominated transferable securities issued after 12 April 2022 or units in collective investment undertakings providing exposure to such securities, to any Russian national or natural person residing in Russia or any legal person, entity or body established in Russia.
• Prohibition of transactions with Central Bank of Russia: the updated European sanctions framework prohibits transactions related to the management of reserves and assets of the Central Bank of Russia, including transactions with any legal person, entity or body acting on behalf or, or at the direction of, the Central Bank of Russia. 
• Prohibition of SWIFT transactions with select Russian banks: Member States also agreed to prohibit the provision of specialised financial messaging services, which are used to exchange financial data (SWIFT), to select Russian banks, including: Bank Otkritie, Novikombank, Promsvyazbank, Rossiya Bank, Sovcombank, VEB, and VTB Bank. The prohibition extends to any legal person, entity or body established in Russia whose proprietary rights are directly or indirectly owned for more than 50 % by the listed banks. It is also prohibited to sell, supply, transfer or export euro denominated banknotes to Russia or to any natural or legal person, entity or body in Russia, including the government and the Central Bank of Russia, or for use in Russia. 
• Restrictions on provision of credit ratings: As of 15 April 2022 it will be prohibited to provide credit rating services to any Russian national or natural person residing in Russia or any legal person, entity or body established in Russia. It will be equally prohibited to provide access to any subscription services in relation to credit rating activities to any Russian national or natural person residing in Russia or any legal person, entity or body established in Russia. 

This note does not constitute sanctions legal advice. Given the potential serious consequences for firms and their senior managers of any sanctions related issues, in case of any doubt about obligations, firms should consider seeking advice from relevant internal functions or external advisors where appropriate.