Government and Bank of Russia prepare a draft decree on exchange of frozen assets

Russian Finance Minister Anton Siluanov announced at a meeting of the Council for Strategic Development and National Projects that a draft Presidential Decree has been prepared that is designed to unblock part of foreign assets so that they can be subsequently exchanged for Russian assets (“Decree”).

According to the head of the Ministry of Finance, it is planned that, at the first stage, funds will be unblocked in the amount of approximately RUB100 billion. He said that assets of more than 3.5 million Russian citizens worth RUB1.5 trillion remain blocked abroad.

As has been reported, the initial phase of the asset exchange will be available to retail investors. It is likely that the Decree will apply to certain groups of investors based on the amount of frozen assets. Foreign investors will be able to purchase from Russian investors the relevant frozen foreign securities using the funds held in Type “C” accounts. The unblocking procedure will be voluntary for both Russian and foreign investors, which is why we believe that Russian investors will need to independently find a counterparty prepared to exchange assets.

As a reminder, Decree of the President of the Russian Federation No. 95 “On the temporary procedure for the performance of obligations owed to certain foreign creditors” signed in March 2022 established a temporary procedure whereby residents can fulfil their obligations under credit facilities, loans and financial instruments owed to certain foreign creditors. Such obligations are satisfied by crediting funds to the type “C” bank account, from which funds may only be withdrawn in limited circumstances.

Such mechanism is an important step towards resolving the issue of unblocking Russian investors’ assets and satisfying the claims of foreign creditors whose funds are held in their type “C” accounts. However it should be admitted that such asset exchange can only be made effective if there are reciprocal steps taken by the European clearing systems and financial market infrastructures and assistance provided by the EU regulators. Since the interaction between the European ICSDs, Euroclear and Clearstream, and the Russian central securities depository NSD has been effectively suspended, it is currently impossible to transfer frozen assets to foreign investors without obtaining separate licences from EU regulators.