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Legal regulation of bank agents:

Current legislation and recommendations for the future

Moscow 2011

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© Russian Microfinance Center,

Institute for Financial Technologies,

2011

This Survey was conducted within the framework of the Project “Promotion of

Innovative Regulation and Supervision over the Activity of Bank Agents to Improve Access to

Finance in Russia” by the Ministry for Economic Development of the Russian Federation jointly

with the Alliance for Financial Inclusion (AFI) to implement the provisions of the Seoul

Development Consensus approved by the G20 countries at the Summit in Seoul in November

2010 and provide for the development of innovative financial instruments. The Russian

Microfinance Center (www.rmcenter.ru) acts as a partner in this Project.

The Alliance for Financial Inclusion (AFI) is a global network of central banks and other

financial policymaking institutions in developing countries. AFI provides its members with the

tools and resources to share, develop, and implement their knowledge of financial inclusion

policies proven to work. AFI connects policymakers through online and face to face channels,

supported by grants and links to strategic partners, so policymakers can implement the most

appropriate financial inclusion policies for their country’s individual circumstances.

AFI is funded by the Bill & Melinda Gates Foundation and administered by the GIZ

(German International Cooperation).

You can read in greater detail about goals and objectives of AFI and the principles of the

Seoul Development Consensus at www.afi-global.org и news.kremlin.ru/ref_notes/769.

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Table of content

Introduction ……………….………………………………………………………………………….4

Key conclusions and recommendations…………………….. ......................................... 5

Opening of a bank account and access thereto via an agent ............................................ 9

Client identification ....................................................................................................... 11

Procedure of client identification by a bank .............................................................. 13

“Delegated” identification under the banking legislation .......................................... 15

Identification of clients by communications facilities operators ............................... 16

Identification of recipients and senders by the Post of Russia .................................. 17

Payment services ........................................................................................................... 17

Concept of settlements and settlement legal relationships ........................................ 18

Transfers without opening a bank account ................................................................ 20

Bank payment agents ................................................................................................ 22

Postal orders.. ............................................................................................................. 26

Payments with the use of a current account ............................................................... 27

Internet and mobile banking ...................................................................................... 28

Payment cards ............................................................................................................ 29

Universal electronic payment card ................................................................................ 35

Providing public and municipal services in electronic form ..................................... 35

Banking services with the use of universal electronic card ....................................... 36

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Introduction

The banking sector has always been a major provider of financial services to the

population of Russia. It accounts for the overwhelming volume of operations relating to

crediting, accepting savings of individuals on deposits, performing settlements and money

transfers. Apart from credit institutions, loan operations and acceptance of savings from

individuals may be performed by law by credit cooperatives (only from the members thereof)

and microfinance institutions (in the amount exceeding 1.5 million rubles):however, the volume

of such operations does not exceed 1% of bank deposits. About half of the settlements of the

population with housing and utility organizations and fixed-line telephony services operators are

performed via credit institutions. Credit institutions have an exclusive right to perform forex

operations.

As of 1 January 2011, 2,926 subsidiaries of credit institutions operate in the territory of

the Russian Federation. Services are provided to individuals in internal structural units of credit

institutions, including 22,001 – in subsidiary (supplementary) offices, 11,960 – in cash offices,

1,389 – in credit-cash offices, 2,994 – in back offices.

Legal provisions that came into force on 1 January 2010 and regulate the activity of bank

payment agents opened up new possibilities for credit institutions regarding the expansion of the

presence thereof in the regions, creation of new additional channels for supply (sale) of bank

services, moving closer to those potential clients who so far have not been covered by banking

(financial) services. This, in its turn, will allow to resolve the issue of enhancing accessibility to

bank services with greater flexibility and at a qualitatively new level, without excessive costs and

creation of new bank branches and offices.

Pursuant to Article13.1 of the Federal Law “On banks and banking activity” a bank

payment agent accepts money from individuals as payment for goods (work, services), taxes,

fines, etc., and also to be credited on a bank account. Apart from that, bank payment agents have

the right to perform operations with bank cards and transfer instructions regarding such

transactions. Replenishment of bank accounts via agents, and performing with the participation

thereof of all the spectrum of operations with cards opens up possibilities to create on their basis

new channels for selling any bank services.

This Survey studies new legal prerequisites for the activity of bank agents in Russia.

Insofar, a bank agent shall be understood to mean

a legal entity or an individual entrepreneur,

who on the basis of a paid-services contract concluded with a credit institution,

participates in bank operations (transactions) performed by a credit institution with

individuals, and also accepts money from individuals for the account of execution of

obligations on such transactions, or pays money to individuals for the account of

execution of obligations by a credit institution.

For the purpose of this Survey it is necessary to study legal possibilities for attracting

agents to perform all kinds of operations (services) provided by credit institutions:

- depositary, i.e. operations to attract the funds of individuals to savings (deposit)

accounts,

- loan, i.e. operations on issuing loans;

- payment, i.e. operations relating to making payments and executing money transfers;

- investment, i.e. operations to manage funds and securities of individuals.

The necessity to open (use) a bank account, i.e. concluding a bank account agreement

between an individual and a bank, will be a major criterion for practical classification of the

above operations. Hence, all the services provided by banks to the clients thereof with the

participation of bank agents are subdivided into two groups:

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- services for the provision of which it is required to open a bank account;

- services for the provision of which it is not required to open a bank account.

Among the four groups of operations (services) those should be singled out that in

principle cannot be provided without the opening of bank accounts: services relating to deposits,

and most likely, investment services (it is necessary to open a savings (deposit) account to safe

keep securities). Loan operations may be performed with cash when a loan is issued and repaid

without the opening of a bank account. This possibility is provided by law. However, in real life

such products are offered by microfinance institutions and rarely by banks.

Payment services hold a special place in the activity of bank agents. One might say that in

Russian practices bank agents “grew” out of the payment sphere. Similar processes occurred in

the markets of retail financial services in Brazil, Mexico and a number of other countries.

Payment services are in greatest demand of the population, therefore the supply thereof at the

time of launching new business models produces the best possible commercial effect.

Payment operations are the basis for offering other banking products, since both in

crediting and in operations on deposits there is a transfer (movement) of funds.

Generally speaking, payments may be executed in non-cash form, that is, via bank

accounts, and without the opening of a bank account. In retail payment sector three models are

dominating which have different legal basis:

- payments via bank accounts with the use of bank cards;

- money transfers without the opening of a bank account, for instance, payments for

housing and utility services;

- payments via payment agents for acceptance of payments of individuals and bank

payment agents (including payments via terminals), for instance, payments for mobile

communications services, housing and utility services, etc.

Absence of a law on the national payment system creates a considerable legal ambiguity.

The State Duma adopted this draft law in the first reading on 10 December 2010. The law, most

probably, will finally establish a legal regime for the functioning of the mobile payment systems,

e-money and “terminal” payments.

This Survey studies the Russian specifics of legal regulation of the banking activity and

out-of-the-office (branchless) provision of services, in parallel analyses the current status of the

retail financial market and gives an overview of the accumulated world expertise in the area.

Only such an approach allows to form an integral picture of regulatory, organizational,

commodity and technological changes, and to identify issues of legal regulation hindering the

development of a bank agency (agent banking) model in Russia. The effective regulatory basis is

analyzed as of 1 January 2011.

Key conclusions and recommendations

The Survey allows to reach a number of important conclusions and recommendations

which are presented briefly in this section. A more detailed analysis is contained in the final part

of the Survey.

The RF Civil Code and the Law “On banks and banking activity” do not contain any

prohibitions regarding the attraction of bank payment agents to and the participation thereof

in provision by banks of loan, savings and investment services to individuals.

Major restrictions to use bank agents are established in regulatory legal acts of the Bank of

Russia. This is accounted for by a consistent, but not always commensurate implementation

of the “know your client” principle.

One of the most critical restrictions placed on the activity of bank agents are the rules of the

Law “On countering legalization (laundering) of criminal gains”. The Law requires that

bank clients (and beneficiaries) be identified when a wide range of operations is conducted

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and does not provide for the delegation of the client identification function by banks to third

persons.

With a minor adjustment of the Law the bank client identification may be delegated by

banks to other persons who, pursuant to the effective laws, will be carrying out

ascertainment of personality and identification of individuals. The effective Russian law

knows examples of “delegated” identification, used, for instance in the pension legislation. It

would be reasonable to legally state the possibility to conclude civil law contracts by a credit

institution authorizing the counterpart thereof to carry out bank clients’ identification.

The legislation does not directly use the concept of bank clients’ authentication. In practice

when a number of bank operations are performed, it is authentication of clients, not

identification, which takes place. Incorporation of the above term (in the sense which was

just described) into the law would allow to make the wordings in the law more precise and

flexible.

Another important issue is the expansion of the bank agents’ functional range, including the

assistance in out-of-the-office (branchless) opening of bank accounts and collection of the

documents necessary for the purpose (certification of copies of documents). The procedure

of client due diligence when a bank account is opened for him/her may be separated from

the identification procedure. It seems reasonable to provide for an opportunity to open

special accounts which have a certain limit on the volume of operations, if the procedure of

opening of such an account via an agent is simplified and is performed out of the office (in

a branchless manner). The concept of the client’s “personal presence” at the time of opening

an account should be specified. For the purpose, a special procedure for client identification

should be spelled out, including the place of identification procedure and the list of persons

who perform the above procedure. The Bank of Russia has the broadest powers in

regulating legal relationships in the course of operations with bank cards. In the absence of a

special law, by way of changing the regulatory legal basis of the Bank of Russia, optimal

conditions could be created for bank agents to exercise respective operations.

In regulating operations with bank cards the Bank of Russia moves towards the replacement

of client identification by the authentication thereof. This opens up broad opportunities for

performance of operations with bank cards via bank agents.

In fact, it seems necessary to grant an agent the right to issue cash from a bank card without

using an ATM, but via the POS-terminals (cash back operations at POS). The amount of

such operations may be limited. Certain kinds of agents may be granted the right to issue

cash from any account, not just the client’s card account.

The existing legal approaches towards classification and regulation of settlement (payment)

relationships are non-systemic and inconsistent. The most problematic sphere is the

regulation of settlements (payments) exercised in cash and non-cash form at the same time,

that is, in instances when only one of the parties has a bank account. At the same time, either

in the legislation or in the doctrine there is no unanimity of views with regard to classifying

such payments either as cash or non-cash. Since such payments are of particular importance

for the retail market, we propose to regard them separately as a special form of payments.

Provisions relating to a bank secret are not a serious limitation on the activity of bank

agents, since with the consent of a client a bank secret may be disclosed to third persons

(bank agents). At the same time, the rights of an agent to receive and transfer to a client the

documents on bank accounts and operations are not provided for directly.

Literal interpretation of the laws on personal data allows to draw a conclusion that a bank

payment agent shall be recognized as an operator of personal data. When processing such

data a payment agent shall be obliged to receive the consent of the client and ensure that the

data shall not be disclosed and remain confidential. Without access to personal data a bank

agent will not be able to identify the client.

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There is a number of obstacles which are to be overcome to make the activity of bank agents

an appealing alternative for credit institutions and their clients. An important condition for

legal regulation of the agents’ activity is the account of the latter’s economic interests,

including the establishment of the commission fee amount.

In the sphere of consumer protection when services are provided by bank payment agents

the most essential risk is that the payer-consumer might transfer the money either to a wrong

person or to a wrong account and he/she will not know how to correct the mistake, and also

the risks that the payer-consumer might lose his/her personal identifier or it might be

intercepted by a fraudster. Despite the fact that the bank is fully liable for operations

executed via an agent, one should not overrule a possibility of disputes between the bank

and the client thereof with regard to the validity of certain operations executed in the name

of the client.

The effective legislation on consumer rights protection does not provide for effective

mechanisms to mitigate the above risks or a procedure for consumer actions when such risks

are realized. The laws fail to provide for prompt and low cost ways of extrajudicial

resolution of disputes between consumers and financial intermediaries.

With regard to bank loan operations a special Law “On consumer loan” should be adopted

which would establish the specifics of relationships referring to consumer loans, and the

introduce the concept of a loan broker. Combining the activity of a loan broker and that of a

payment agent will allow to significantly enhance the efficiency of these financial

intermediaries.

The adoption of a series of laws between 2007 and 2010 regulating the activity of

professional creditors (pawn shops, credit cooperatives and microfinance institutions) raised

a number of systemic legal issues relating to the regulation of loan agreements and credit

contracts. The effective legislation allows to authorize the above professional creditors for

the functions of bank payment agents, which will make it possible to considerably expand

the spectrum of services provided by them.

The uniform requirements on the part of the Bank of Russia to the opening of bank accounts

and savings (deposit) accounts do not create particular difficulties for opening savings

(deposit) accounts via agents. Given the fact that performing settlement operations on

savings (deposit) accounts may be restricted, it would be rational to provide for a simplified

procedure for opening such accounts (considering lower risk of legalization of criminal

gains).

Along with banks, credit cooperatives and, on certain conditions, microfinance institutions

have been granted the right to accept savings from individuals (deposits in the economic

sense). Despite the obvious economic similarity, the contractual law nature of the above

relationships is principally different. This makes it impossible to use (bank) payment agents

for the transfer of savings to cooperatives or MFIs.

The activity of mobile communications facilities operators on providing services of mobile

banking fails to conform to the current banking legislation on payment agents. The legal

structure of mobile banking operators services in many ways are similar to legal schemes

that provide for the functioning of non-bank electronic payment systems that use the so

called e-wallets for settlements. It is necessary for the legislator to determine at soonest the

terms, procedure and rules for the provision of mobile banking services by non-bank

institutions. At the same time they may be transformed into bank payment agents.

Hence, three basic legal and regulatory objectives should be singled out to be

implemented within the framework of the Project:

1. Establishing the procedure of “delegated” identification of bank clients with the

participation of agents;

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2. Describing the procedure for the opening of bank accounts and savings (deposit)

accounts via bank agents, and the participation thereof in the issue of bank payment

cards operations;

3. Regulating the activity of bank agents on the part of the Bank of Russia and the

oversight of the activity of bank agents by credit institutions, which should also

include the consumer protection aspect.

The proposed regulatory and legal changes should be in our view implemented in three

stages. Two factors should be taken into account in the process:

- the difference in the legal status of various groups of persons acting as bank agents.

Specifically, a distinction could be made between (i) agents obligated to monitor

operations with funds due to the requirements under the legislation on countering

legalization (laundering) of criminal gains, (ii) agents engaged in personality

identification of individuals in conformity with the requirements of special laws, and

(iii) other agents;

- different degree of technical equipment and readiness of different groups of bank

agents to exercise client identification, perform actions on branchless (out-of-the-

office) opening of bank accounts and operations with cash.

At the first stage a group of best prepared agents can be admitted to identification of bank

clients for the purpose of opening savings (deposit) accounts on the basis of contracts with a

credit institution, such as: postal service organizations, communications facilities operators,

notaries public, credit cooperatives, microfinance institutions, municipal authorities. Credit

institutions that operate in the regions can identify individuals for the benefit of other (federal)

credit institutions (banks) while providing services within the framework of regional programs.

The model of “bank-for-bank” identification may be in demand in instances when a non-bank

credit institution identifies a bank client for the subsequent opening of a savings (deposit)

account. The most reliable bank agents should be granted the right to gather documents and

identify bank clients within the framework of branchless opening of savings (deposit) accounts

programs, which do not provide for settlement operations.

At the second stage other kinds of bank agents may be allowed to engage in the bank

client identification on the basis of instructions from banks and civil law contracts with them,

specifically: economic societies (retail trade organizations, service sphere organizations, etc.)

The most reliable bank agents should be granted the right to collect documents and identify bank

clients in programs of branchless opening of bank accounts, including card accounts (with a total

limit on the amount of operations and the balance on the account). Certain agents get the right to

issue cash from the client’s accounts and to issue bank loans in cash.

At the third stage a limited group of agents may get the right to collect documents and

engage in identification of bank clients within the programs of branchless opening of “standard”

bank accounts, issuance of bank cards, etc. The list of bank operations performed via such agents

may be maximally broad, including settlement, loan, savings and investment operations.

Kinds of bank agents and operations performed by them Acceptance

of payments

Identification Branchless (out-

of-the-office)

opening of an

account

Issuance of a

bank card

Filing a loan

application

Issuance of

a loan,

return of a

deposit

Postal service

organization

+ + + + + +

Communications

facilities

operator

+

Notary Public + + + +

Municipal

authority body

+ + + +

Credit + + + +

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cooperative

MFI + + + +

Retail trade

organization

+ + + +

Opening of a bank account and access thereto via an agent

In the Russian language the term “account” and “bank account” may be used in different

meanings. In book accounting the term means a position in the books reflecting the status and the

movement of funds, tangible and other assets. Chapter 45 of the RF Civil Code introduces a

concept of “bank account” as a kind of a civil law contract. Article 11 of the Tax Code defines

an account as a settlement, current and other bank accounts that are opened on the grounds of

bank account agreements, and to which funds are credited and from which money of

organizations, individual entrepreneurs, notaries public engaged in private practice, attorneys

who founded a legal office may be disbursed.

In this Survey a bank account shall be understood as a civil law bank account agreement

which is concluded by a credit institution with the clients thereof. Under this agreement the bank

shall be obligated to accept and credit funds transferred to an account opened to the client

(account holder), execute client’s instructions on the transfer of funds and issuance of respective

amounts from the account, as well as performance of other on the account (Article 845,

paragraph 1, of the RF Civil Code).

Out of all the diversity of bank accounts we would like to analyze those kinds that are

opened to individuals for performing operations which are not related to entrepreneurial activity.

They include current accounts and savings (deposit) accounts of individuals.

Current accounts are opened by banks to individuals to perform settlement operations not

related to entrepreneurial activity or private practice. Various forms of settlements established

by law may be used in non-cash settlements on such accounts: settlements by payment orders,

letters of credit, cheques, and payment collection.

Savings (deposit) accounts are opened to individuals for accounting funds placed in credit

institutions (branches thereof) in order to receive income in the form of interest calculated as a

percentage of the funds placed on the savings account. A savings (deposit) account differs from

other bank accounts with regard to the number of banking operations performed on it and does

not fully conform to the concept of an “account”. It is opened on the initiative of a credit

institution on the grounds of a bank account agreement and it does not provide for settlement

operations to be performed on it.

The grounds for the opening of a bank account, savings (deposit) account shall be a bank

account agreement and presenting of all the respective documents specified by the laws of the

Russian Federation.

A bank account is opened to a client if:

- a respective contract is concluded;

- the bank received all the necessary documents;

- client identification procedure was carried out in conformity with the Federal Law

“On countering legalization (laundering) of criminal gains and financing terrorism”

(hereinafter Law#115-FZ).

In accordance with the Instruction of the Central Bank of the Russian Federation of 14

September 2006, #28-I “On opening and closing bank accounts, savings (deposit0 accounts” to

open a current account to an individual the following package of documents shall be filed to the

bank:

- a document certifying the personality of an individual;

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- a card with the samples of signatures and the seal impression (with the exception of

instances when under the RF laws the opening of a bank account, savings (deposit)

account is determined by the availability of documents which are not specified in the

Instruction of the Central Bank dated 14 September 2006, #28-I;

- the documents confirming the powers of persons specified in the card with samples of

signatures and the seal impression issued to dispose of the funds that are on the bank

account (if such powers are transferred to third persons), and if the agreement

provides for the certification of rights to dispose of the funds on the account by third

persons with the use of the analogue of the true signature, the documents certifying

the powers of persons who are granted the right to use the analogue of one’s true

signature;

- a certificate on the registration with the tax authority (if available).

For an individual to open a savings (deposit) account the following set of documents

should be filed to the bank:

- a document certifying the personality of an individual;

- a certificate on the registration with the tax body (if available).

If a bank account agreement provides for the possibility of settlements with the use of a

savings (deposit account), a card with the samples of signatures should be presented. At the same

time, documents shall be provided certifying the powers of persons specified in the card to

dispose of the funds on the account, if such powers are transferred to third persons.

If a bank account agreement provides for the certification of rights to dispose of the funds

on the account by third persons with the use of the analogue of the own true signature,

documents shall be provided certifying the rights of persons who are granted the right to use the

analogue of the own true signature.

Apart from the above documents to be filed, a bank has the right to request from a

potential client additional documents allowing to identify thereof. In so doing a credit institution

shall be obligated to take well grounded and comprehensible measures to identify beneficiaries

irrespective of civil law consequences of performing operations with money and other assets.

Important specifics is related to the procedure of filing documents by a potential client in

order to open an account.

For the opening of a bank account, savings account the originals of the documents should

be filed or the copies thereof notarized in accordance with the procedure established by the laws

of the Russian Federation.

In instances provided for by the bank rules, documents which are filed when a bank

account, savings account is opened may be certified by an official of the bank (another

authorized person of the bank) in accordance with the procedure described below. An official of

the bank (another person authorized by the bank) shall have the right to certify copies of

documents to be filed by a client (representative thereof) for the opening of a bank account,

savings (deposit) account.

An official of the bank or another person authorized by the bank who is a bank officer

makes an inscription on the document “the copy is true” and specifies his family name, name,

patronymic (if any), position or the details of the identification document, and also applies his

true signature and the impression of the seal established for such purposes by the bank.

Another person authorized by the bank, but not a person on the staff of the bank, makes

an inscription “the copy is true” on the documents and specifies his family name, name,

patronymic (if any), position, the details of the identification document, and also applies his true

signature and the impression of the seal established for such purposes by the bank.

The documents (the copies thereof) gathered by the bank at the time of opening a bank

account, savings (deposit) account are placed into a legal file. Chapter 10 of the Instruction of

the Central Bank of the Russian Federation, dated 14 September, #28-I establishes the

requirements regarding the maintenance of the client’s legal file, and also stipulates the

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provisions relating to the adoption of by-laws of a credit institution regulating the legal regime

for the opening of bank accounts and savings (deposit) accounts.

In the event of several bank accounts, savings (deposit) accounts of one client opened in

one bank, one legal file may be formed regarding several accounts of the client.

If a person who applies to the bank for the opening of a bank account, savings (deposit)

account is a representative of several clients, the bank shall have the right to place the copies of

documents (or information about the details thereof) certifying the personality of the

representative, and also the documents confirming the respective powers vested in him, into the

legal file of one of the clients in whose interests the representative acts. At the same time, legal

files of certain clients should contain information pointing to the legal file in which the above

documents of the representative of these clients are placed. The procedure for forming legal files

of clients is determined by the bank in its by-laws.

Clients identification

A most significant legal limitation regarding the use of bank agents today is, most likely,

the existence of rigid requirements to bank clients’ identification. The rule “know your client”

applied to financial institutions is set as a priority by governments in their initiatives to counter

money laundering and financing terrorism. Regulation in this sphere introduces mandatory

requirements to the “transparency” of account holders, payers and recipients, including in the

least the client personality identification. This is a particularly complicated problem in the event

of branchless (out-of-the-office) bank services for two reasons.

A general condition for banking activity is the observance of the “know your client” rule.

When a certain bank operation is performed - an opening of an account, issuance of a loan,

acceptance of a deposit, execution of payment – a credit institution must identify the person who

it is dealing with, unless provided otherwise by law.

In the Federal Law “On countering legalization (laundering) of criminal gains and

financing terrorism” #115-FZ (hereinafter Law 115-FZ) this procedure is called identification of

clients and beneficiaries by a bank. Given the objective of this Survey, it will be assumed further

in the text that both persons named above concur.

Concept of identification. Let us analyze in greater detail the concept of identification

which is also closely related to the authentication and authorization categories.

In a most general case identification is a procedure to establish the identity of an object.

In the Dictionary of Foreign Words the concept “identification” is understood as sameness,

likening, establishing concurrence of something with something. In the Explanatory Dictionary

of the Russian Language by S.I.Ozhegov and N.Y.Shvedova the word “to identify” means to

establish concurrence, identity.

In banking activity not only the subjects are identified (individuals, legal entities) but

objects too (documents, securities, signatures, etc.). For the purposes of countering legalization

of criminal gains identification procedure is carried out exclusively with regard to individuals

and legal entities.

Identification should not be confused either with authentication or authorization.

Authentication is a check of whether the identifier presented by a person actually belongs

to him/her, as well as the confirmation of the authenticity of an object or a subject. One of the

ways of authentication in a computer system presupposes the entering of a user’s identifier,

called “login” in common speech (Eng. “Login” is a registration name of a user) and a password

which is confidential information the knowledge of which insures the possession of a certain

resource. Having received the entered login and password, the computer system compares

thereof with the meaning that is stored in a special data base, and if they concur, the user gets

access to the system. The document (textual) input of login and password is not the only

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authentication method. In bank and payment systems authentication is used with electronic

certificates, plastic cards and even biometric devices, such as scanners of the human iris, finger-

or palm prints.

Lately an expanded or multiple-factor authentication has been used, i.e. when several

components are used: information known to the user (password), physical components (for

instance, authentication key rings or smart cards) and personality identification technologies

(biometric data).

In interbank settlement system the authentication procedure is used when information is

exchanged by computers, and most sophisticated cryptographic protocols are used providing for

the protection of communication line against lurking or substitution of one of the participants in

the interaction. As a rule, authentication is necessary for both objects establishing network

interaction, since it should be mutual.

The process of granting the rights to a person to execute certain actions, confirmation of

the possession of such rights is called authorization. In the banking sphere “authorization” is

meant to be understood as the verification of the user’s right to perform a transaction executed in

the point of service which should result in either the permission or prohibition to a client to

perform operations (for instance, performing a sales act, receiving cash, access to resources or

services).

In information technologies rights of access to resources and data processing systems are

established and implemented via authorization. In financial sphere authorization is conducted

when bank payment, credit or other cards are used.

Hence, the basis for identification is to ascertain the personality of an individual.

Personality identification. Neither Law #115-FZ, nor the regulatory framework

developed on the basis thereof use the concept of “personality identification”. In legal surveys

and research that were available we failed to find the comparison of concepts “identification of a

person” and “personality identification”. It seems that the content of the above categories should

correlate in the following manner. As a rule, personality identification is understood in law as

actual actions (process) of an authorized person aimed to find out the personality of an individual

who is personally present. Such actions presuppose a check of the personality identification

document and finding out whether the document belongs to the individual who presented it.

In contrast to personality identification the identification of a person may be conducted

both with regard to individuals (physical persons) and organizations (legal entities). Apart from

that, it may be possible to identify not only persons who are present in person, but those who are

absent in the place where identification of persons is carried out. Identification of a person

presupposes gathering broader data than personality identification.

The concept “personality identification” (as a procedure) is well developed in procedural

law. For instance, Article 42 of the Basic Principles of the Russian Federation on the Notaries

System approved by the Supreme Court of the Russian Federation on 11 February 1993, #4462-1

introduces a concept of identification of the personality of an individual who applied for a notary

act. Personality identification shall be conducted on the basis of a passport or other documents

which exclude any doubts regarding the personality of an individual who applied for the

execution of a notarial act.

The category “personality identification” is also used in the Code of Administrative

Offences (Articles 27.1 and 27.5), Criminal Code of Procedure of the Russian Federation and a

number of other legal acts. Pursuant to Article 265 of the Criminal Code of Procedure of the

Russian Federation, personality identification suggests ascertainment of family name, name,

patronymic, date, month, day and place of birth of an individual.

The Passport of a citizen of the Russian Federation. The key document on the basis

whereof the personality of an individual and citizen of the Russian Federation is identified is the

passport of a citizen of the Russian Federation. A special Federal law regulating the relationships

which arise in connection with the issuance of the passport has not been adopted yet. This sphere

is governed by three Decrees of the President of the Russian Federation.

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In conformity with Decree #232 the passport of a citizen of the Russian Federation shall

be the basic document in the territory of the Russian Federation. In pursuance of the Presidential

Decree, the Government of Russia adopted RF Resolution #828 “On the approval of the

Regulations On the passport of a citizen of the Russian Federation, the sample form and

description of the passport of a citizen of the Russian Federation”, dated 8 July 1997.

All the citizens of the Russian Federation who have reached fourteen and residing in the

territory of the Russian Federation shall be obligated to have a passport. The data listed below

shall be entered into the passport: family name, name, patronymic, date and place of birth.

Check of the personality identification documents. Examination of the client’s passport

(or another identification document) makes up the foundation for client identification procedure.

In this connection it seems reasonable to remind of the procedure for examination of personality

identification documents.

It is recommended to examine the presented document in three stages: authentication of

the document, checking whether the document really belongs to the holder thereof, detecting

signs of changes in the original content. If signs of changes in the original content are detected, it

is necessary to thoroughly examine not only the face of the form with the photograph, but the

back too.

The analysis of forensic examination of documents shows that one of the most popular

ways to change the content in the document is to substitute the photo. The substitution of the

photograph in most cases occurs with personality identification documents. The photograph of

the owner of the document may be replaced by a photograph of another person either in full or in

part.

In order to protect the document from counterfeiting, the photograph and the form are

fixed with the impression of either the mastic or relief stamp. Today for the protection of

documents they are laminated with the use of special polymer films and fixed with a hologram.

Indirect ways of protecting documents from counterfeiting may include signing of the

photograph with the initials of the owner on the back of the photograph when the documents are

accepted for formalization. Some of the photographs are glued to the passport of a citizen of the

Russian Federation with special glue.

Thus, the person authorized to identify the personality of a bank client should have a

certain special knowledge to be able to detect at least the most obvious cases of counterfeiting

identification documents of an individual, and thus bring down the number of identification

errors to a minimum.

Procedure of client identification by a bank

A credit institution shall be obligated to identify a person serviced thereby (a client) when

bank operations and other transactions are performed in conformity with the Federal Law “On

banks and banking activity”. The Bank of Russia established requirements to the identification of

clients and beneficiaries by banks in the Regulations “On identification of clients and

beneficiaries by credit institutions to counter legalization (laundering) of criminal gains and

financing terrorism” (approved by the RF CBR, # 262-P, of 19 August 2004). A credit institution

must develop and approve a program for client identification, ascertainment and identification of

beneficiaries including the procedure of identification of above persons, and also the procedure

for assessing the degree (level) of risk regarding the performance of operations by such clients.

Identification of clients-individuals is carried out on the basis of documents and

information gathered by a credit institution, the list of which is provided by law and the most

important of which are those listed below:

- family name, name and patronymic;

- date and place of birth;

- citizenship;

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- details of the personality identification document, series and number of the document,

date of issuance, name of the body that issued the document and the code of the unit

(of any);

- residence (registration) or temporary residence address.

Identification of a client-individual, establishment and identification of a beneficiary shall

not be carried out

- when organizations performing operations with money or other assets of clients

accept payments in the amount not exceeding 15 thousand rubles (or the equivalent

amount in foreign currency),

- when an individual performs an operation on purchase or sale of foreign currency in

cash for the amount not exceeding 15 thousand rubles (the equivalent amount in

foreign currency);

- with the exception of instances when an employee of a credit institution performing

operations with money or other assets, has suspicions that this particular operation

with money or other assets is exercised to legalize (launder) criminal gains or finance

terrorism.

The documents filed by a client should be valid as of the date of filing thereof and be

made in the Russian language. The documents made fully or in some part thereof in a foreign

language shall be filed to a credit institution with a Russian translation duly notarized. In the

event information necessary for the identification of a potential client and beneficiary which is

available to a credit institution is insufficient, it may be obtained from other government

agencies.

A form recommended by the Bank of Russia to record information received in the

process of identifying a client and establishing the beneficiary thereof – a client’s form (file) -

shall be filled both in paper and electronic form. The form of the file per se shall be determined

independently by a credit institution.

In conformity with Bank of Russia Regulations #262-P the client’s form shall include the

following information:

1. Information received as the result of the client identification procedure, ascertainment

and identification of the beneficiary.

2. Information on the degree (level) of risk, including the justification of risk assessment.

3. The date of the start of relationships with the client, specifically, the opening date of

the first bank account (bank deposit).

4. The date of filling in and updating the client’s form (file).

5. The family name, name and patronymic, the position of the officer in charge of

working with the client, specifically the officer who opened the account and approved of opening

the account, account manager (if any)..

6. The signature of a person who filled in the client form (file) on paper carrier

(specifying the family name, name (unless provided otherwise by the law or national custom)

and/or family name, name and (unless provided otherwise by the law or national custom)

patronymic, position of the person who filled in the client form (file) on electronic carrier.

7. Other information at the discretion of a credit institution.

Pursuant to a general law, repeated identification of a client shall not be allowed, with the

exception of instances when doubts arise with a credit institution regarding the reliability of

information received earlier as the result of the identification program.

When certain kinds of banking operations are performed by a credit institution simplified

identification may be applied. Simplified identification of an individual is provided for if:

- money is transferred upon the instruction of individuals without opening bank

accounts;

- bank operations and other transactions with cash in foreign and RF currency and

cheques (including travel cheques) are performed while the nominal value thereof is

denominated in foreign currency;

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Simplified identification of a physical person presupposes the ascertaining of a family

name, name and (unless provided otherwise by the law or national custom) patronymic, details

of the personality identification document of a client.

A credit institution must pay increasing attention to operations with money funds or other

assets that are performed by clients who present greater degree (level) of risk

“Delegated” identification in banking legislation

A credit institution identifies clients and beneficiaries in its own interest. In other words,

banks identify their clients, not the clients of other banks. On the other hand, the Bank of Russia

allows that the acceptance of personality identification documents of a client – individual, the

check of the duly formalized documents and the completeness of information provided, the

reliability of such information, certification of copies of documents be executed both by an

officer of a credit institution and another person authorized by a credit institution who is not on

the staff thereof. All the above actions may be performed out of the office of a credit institution

and with the use of appropriate communications facilities (postal, electronic).1.

A logical comparison of the above provisions leads to a question whether a bank that

accepts documents of a client of another bank has the right to check them? A positive answer to

this question would open up the way to the so called “delegated identification” of bank clients -

when one bank (the officers thereof) carry out the identification procedure in the interest of other

credit institutions. In which way could the order for such identification be formalized?

In other words, an objective could be set that the identification of a physical person

performed by one credit institution should be “recognized” by other credit institutions. Such

identification could be demonstrated in the transfer of a client form (file) (on condition of non-

violation of requirements relating to a bank secret). As noted above, such “tertiary” identification

occurs when individuals perform operations with bank cards. Servicing via an ATM a holder of a

bank card that was issued by another bank a credit institution proceeds from an assumption that

this particular holder is identical to the person who was identified by an issuing bank, since the

cardholder entered the correct PIN-code.

The effective clarifications of the Bank of Russia provide a negative answer to the above

questions. The confirmation of that stand can be found in the Central Bank of Russia Letter “On

identification” of 31 August 2007, #12-1-5/1971. In it the Bank of Russia states the following: if

a credit institution assigned the right (claim) on the Loan Agreement concluded by the creditor

and an individual borrower to another organization, an individual borrower shall be a client of

the credit institution to which the rights of creditor regarding the above Agreement were

transferred, and this credit institution shall be obligated to identify this individual borrower, that

is, to gather necessary documents and information. Actually this means that a bank which is an

assignee shall be obligated to perform identification of a client even when it is a singular legal

successor in relationships with the client.

If a borrower-individual in order to repay a loan to a new creditor needs to open bank

accounts, paragraph 5 of Article 7 of Law#115-FZ should be taken into account pursuant to

which credit institutions are prohibited to open accounts (savings accounts) to individuals

without the presence of a person who opens an account, or his/her representative.

Certain difficulties also arise since the concept “delegated” identification should agree with

the legal requirements on the bank secret and personal data protection. According to Article 26

of the Law on banks, a credit institution guarantees the secrecy of operations, accounts and

deposits of its clients. Documents on the account status and saving accounts of individuals shall

be issued by a credit institution personally the client him or herself, courts, agencies that enforce

judicial acts, acts of other bodies and officials, Deposit Insurance Agency (if there is an

1 The CBR Letter “Generalization of practices on the issuance of bank cards and performance of operations

with the use thereof” of 25 September 2009, #117-N.

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insurance event), and bodies of preliminary investigation in relation to cases which they are in

charge of (exclusively with the consent of the head of the investigating body). Bank payment

agents are not mentioned in this connection.

This Article also stipulates that bank payment agents guarantee the secrecy of information

about operations on accounts and the accounts of individuals whose payments are accepted by

them pursuant to Article 13.1 of this Federal Law. At the same time, the law does not provide for

the right of bank payment agents to receive documents on accounts and savings of individuals

upon the instruction of the latter. It is not clear from the provision of the law whether an agent

should keep a bank secret in the instance when he does not accept payments from a bank’s client,

but vice versa, pays the loan amount, or when an agent is used only as a channel of access to

bank information. The law does not give an answer to the question in which form should the

client’s consent be expressed for bank payment agents to have access to information which

constitutes the client’s bank secret.

By force of Article 3 of the Federal Law “On personal data” of 27 July 2006, #152-FZ,

a bank payment agent becomes an operator of personal data and is obligated to ensure

confidentiality thereof (Article 7). Without access to personal data an agent will not be able to

identify a client. Thus, a client of a bank payment agent should be ready that his/her personal

data will be potentially available to all bank agents of the bank of his choice. The law does not

answer to the question in which form should the client’s consent be expressed regarding

processing (Article 9) and transfer of his/her personal to any of the bank’s agents.

Identification of clients by communications facilities operators

While discussing the issue of “delegating” identification of clients by banks to other

organizations (bank payment agents), let us dwell on the issue of identification (establishing

identity) of clients that is performed by other organizations in conformity with special laws not

related to performing operations with money.

By force of law identification of clients (establishing senders and recipients) should be

conducted by communications facilities operators and organizations of federal postal service.

Despite the fact that in this instance identification is carried out for purposes different from those

relating to legalizations (laundering) of criminal gains and financing terrorism, the assessment of

practices existing in this sphere may prove useful for improving procedures and mechanisms

aimed to develop bank services with the use of agency schemes.

The legislation provides for two forms of concluding a contract between a client and an

operator:

- by drawing up a contract in writing, and

- by way of exercising contracting bargains (implicative actions):.

If the prior form is rather popular and typical, the latter may be expressed in various

contracting bargains (implicative actions): for instance, in payment, or in acceptance by way of a

“clicking” to a reference box marked “agree” after reading a public offer placed on the official

site of a communications facility operator, etc.

The rules provide for a possibility to use the second form only in the event when a fixed

term contract on providing one-time services to transfer data in collective points of access is

concluded. The moment when a subscriber and (or) user starts the actions aimed to establish

connection via the data transfer network (communication session) is recognized as the time of

concluding the contract.

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Identification of recipients and senders by the Post of Russia

Postal services shall be understood to mean actions or activity on receipt, processing,

transportation, delivery (serving) of postal items, as well as exercising money transfers (Article 2

of the Federal Law “On postal service” of 17 July 1999, #176-FZ, hereinafter – Law#176-FZ).

Credit institutions broadly use postal services not only to send to the clients thereof

promotion and advertizing information, account statements, bank cards, but also to receive

information from their clients, which is necessary for client identification and serve other

documents in the hands of the clients.

Postal services are provided to banks by postal service operators who have the right to

provide postal services. Postal services are rendered on the basis of an appropriate license.

Pursuant to Article 16 of Law#176-FZ, postal services are provided on a contractual

basis. Under a Contract of Postal Services a postal service operator shall be obligated to send,

upon the instruction of the sender, the postal item entrusted to him or to transfer money by postal

order to the address specified by the sender and deliver (serve) it to the addressee. Users of

postal services have the right to receive postal items and postal orders at their postal address

poste restante or using the slots in subscribers’ postal racks.

In conformity with the Rules for providing postal services approved by the Resolution of

the Government of the Russian Federation of 15 April 2005, #221, depending on the way of

processing, postal items are subdivided into two categories:

- regular postal items accepted from the sender without issuance of a receipt and

delivered (served) to the addressee (or the legal representative thereof) without his/her

signature confirming receipt;

- registered mail (registered items with declared value,) accepted from the sender with

the issuance of acceptance receipt and served to the addressee (his/her legal

representative) with the signature thereof confirming receipt.

Pursuant to paragraph 34 of the Rules, delivery (service) of regular postal items

addressed poste restante, registered postal items, and the issuance of postal orders to addressees

(legal representatives thereof) shall be executed upon presentation of identification documents.

Thus, when regular postal items addressed poste restante and registered postal items are sent, the

postal service operator shall be obligated to ascertain the personality of the individual to whom

the item is served, and in case of a registered postal item, the operator must also get a signature

of receipt from the addressee.

Notification about registered postal items are placed to the slots of subscribers postal

racks, postal subscribers’ boxes, postal boxes of postal stations in conformity with addresses

inscribed on them, unless provided otherwise by a contract between a postal service operator and

the user of the postal service.

Under paragraph 47 of the Rules, postal services operators may also certify Powers of

Attorney of individuals for their representatives to receive correspondence addressed to them.

Such Power of Attorney may be issued with regard to all and any letters and postal orders of an

addressee. Certification of a Power of Attorney issued by an individual presupposes the latter’s

personality identification by the postal service operator.

Payment services

The payment system occupies an important place in the financial infrastructure created by

the Government of Russia. As noted in the “Strategy for the development of the banking System

of the Russian Federation for the period up to 2015”, the payment system “should have as its

foundation modern, complex and balanced legal regulation and use up-to-date standards and

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technologies. Legal environment should be ensured for the regulation of the activity of

organizations that are operators of money transfers, including e-money operators. Such

regulation should also cover operations with the participation of payment agents (sub-agents),

operators of payment systems, operators of payment infrastructure (operation centers, clearing

centers, settlement centers); the requirements to organization and functioning of payment

systems should be set, and the supervision and monitoring procedures in the national payment

system be developed”.

A significant element in the payment system is the system of retail payments, that is, an

aggregate of organizations, processes, technologies and infrastructure ensuring the execution of

payments and settlements of individuals.

An efficient retail payment system should ensure 100 percent coverage of the population

of Russia, irrespective of geographical location, level of wealth and preferences in consumption.

The citizens of Russia should have a possibility to make choices when performing payment

operations in cash and non-cash form, from a bank account or via postal order, in bank offices or

out of the bank offices (branchless services).

An important role in providing territorial access to payment and other banking services

should belong to (bank) payment agents with regard to whom regulation saw considerable

changes between 2009 and 2010.

Concept of settlements and settlement relationships

So far no comprehensive and consistent system of terms and concepts has been formed

with regard to legal regulation of payments and settlements. Along with the existence of detailed

rules and regulations applied to certain forms of non-cash settlements, drastic differences are

observed in doctrinal and theoretical constructions relating to the payment sphere described by

Russian legal scholars. Among other things, this may be accounted for by gaps in the regulation

of payment services and relationships regarding settlements both at the level laws and

regulations (regulatory acts of the Bank of Russia). An authorized regulatory body is not

determined for certain retail segments of the market, which also negatively tells on the body of

laws and regulations.

Greater clarity in the regulation of payment services (including retail services) must

appear with the adoption of the Federal Law “On the national payment system”. As noted in the

Explanatory note to the draft law submitted by the Government of the Russian Federation to the

State Duma (draft #455931-5), “the effective laws of the Russian Federation fail to form a

systemic legal framework regulating legal relationships in the sphere of national payment

system. The object of legal regulation of Chapter 46 “Settlements” of the Civil Code of the

Russian Federation is the sphere of relations between banks and clients within the range of

various forms of non-cash settlements which are currently applied.

As for relationships which arise in organization and functioning of the payment system

and the use of payment infrastructure, the above provisions may be applied to them to a limited

degree;… for the development of the national payment system legal support of payment

innovations is of great significance, innovations which appear as the result of technological

development (e-money, web-payments, mobile payments), as well as the general environment

for a comprehensive application of electronic means of payment and electronic facilities for

processing payment information. In this connection it is necessary to take into account the

technological specifics and the adequate reflection thereof in the provisions of laws relating to

the national payment system”.

According to D.G.Alekseeva and S.V. Pykhtin, the issue of determining the legal nature

of settlement relationships has for a long time been a subject for scholarly debate; meanwhile no

single position on the above issue has been developed. Given the insufficient completeness of

legal regulation of payment relationships and a whole number of unresolved issues of general

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theory in this sphere, it seems reasonable to dwell on the key concepts and definitions relating to

it.

The analysis of opinions in legal literature that refer to determining the legal nature of

settlement relationships allows to single out two approaches. The idea of the first one is that

settlement relationships do not have their independent meaning as an object of special legal

regulation; and since they do not have an independent economic meaning, their role is auxiliary.

No new (added) value is created as the result of such relationships; they just determine the

relations between the payer and the recipient of funds at the time of payment execution and

relate mostly to the external form of actions performed by those who participate in the payment

of agents (subjects). The second approach to determining the legal nature of settlement

relationships is, vice versa, based on the recognition of independent nature of settlements due to

a specific subject composition and the object used in such relationships. This allows to regard

settlement relationships as a separate kind of civil law relations. This approach is based on the

essence of non-cash settlements as one of the two known ways to execute settlements, which

presupposes that a bank account agreement is concluded by the debtor and the creditor with

credit institutions servicing thereof to repay the money liability which has arisen.

Just as many debates arise with regard to the means (ways, procedures) of settlements

(settlement legal relationships). Article 861 of the RF Civil Code stipulates for two settlement

procedures: in cash - when the debtor physically transfers money to the creditor, and settlements

in a non-cash form, via credit institutions through bank accounts opened therein. Article 862 of

the RF Civil Code establishes several forms of non-cash settlements: settlements by payment

orders, letters of credit, cheques, encashment, and settlements in other forms provided by the

law.

Such classification is not grounds enough for introducing a single legal category of

settlement relationships which would combine cash and non-cash settlements. Civil law experts

tend to think that when settlements are made in cash no separate liabilities arise regarding

settlements. The transfer of money is usually an action on the part of the debtor to execute a

respective money obligation which is part of a civil law liability on the transfer of goods,

execution of work or rendering of services. That is why the existing legal regulation of

settlements in cash is limited by relationships with the participation of legal entities and

individuals engaged in entrepreneurial activity, and is manifested in the restriction on such

settlements.

In the opinion of the respected scholars even the participation of a bank in the

relationships analyzed is not sufficient grounds to consider such relations as settlements. There

are quite a number of instances, note M.I.Braginsky and V.V. Vitryansky, when banks provide

services to individuals who do not have a bank account on transferring money or accepting and

effecting various payments, for instance, to utilities services or tax agencies. In such situations,

despite the direct participation of a bank in respective relationships, no particular settlement

relations requiring special regulations arise, and actually existing legal relations are liabilities

with regard to providing services for compensation which are related to the money transfer. The

composition of subjects in such kind of liabilities may also include a different (not a bank)

provider of money transfer services, such as communications agencies, specialized

organizations, etc.

Hence, the scholars referred to above actually place an equality sign between non-cash

settlements and settlement relations which are understood as relations arising between the

account holder – the payer (recipient of money funds) and the bank where the payer’s bank

account is opened, and other banks involved in the performance of the respective bank operation

in connection with the execution of instruction of the account holder regarding the transfer

(receipt) of money placed on the bank account in the procedure of non-cash settlements.

When developing a comprehensive and consistent classification of kinds (ways) of

settlements (payments) both the opinion of respected civil law scholars and practical needs of

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retail payments market should be taken into consideration. Today the Russian Federation uses

three methods of settlements with the participation of individuals:

- direct transfer of cash by the payer to the recipient,

- non-cash settlements on bank accounts of the payer and recipient, including

settlements with the use of bank cards,

- transfer by an individual – the payer – of cash to a credit institution with an

instruction regarding the money transfer without opening an account, or to a

specialized intermediary (payment agent, bank payment agent) with an instruction to

make payment to be credited to the bank account of the recipient.

The discussion about where the third mechanism belongs to – either cash or non-cash

settlements – does not seem very productive. We propose to consider it as an independent

procedure of settlements (payments) which includes several forms:

- money transfers by credit institutions on the instruction of individuals without

opening bank accounts (with the exception of postal orders);

- payments of individuals made with the participation of bank payment agents

exercising the activity thereof basing on Article 13.1 of Law On Banks,

- payments of individuals via a payment agent who is engaged in activity on accepting

payments of individuals on the grounds of the Federal Law “On Activity exercised by

payment agents on the acceptance of payments from individuals”, of 3 June 2009,

#103-FZ (version of 8 May 2010) (hereinafter Law #103-FZ).

Certain authors raise an issue of the legal nature of settlements via mobile banking of cell

communication operators. In conformity with the dominating viewpoint regarding the legal

nature of non-cash settlements, in the process of non-cash settlements rights of claim of clients

are addressed to banks regarding the payment of funds in the amounts transferred by clients to

the credit institution. However, when settlements are executed with the mobile banking

technologies of a communications facility operator, it seems more appropriate to speak about

addressing the right of claim of a subscriber to the operator of cellular communications, while

the contract for communication services will be the legal grounds for making payments.

In mobile banking of communications facilities operators not only personal (telephone)

accounts of subscribers may be used, but also their bank accounts, bank accounts of suppliers of

goods (services), and bank accounts of third persons who are not suppliers of goods or services.

Insofar, there is no necessity to pay cash to the communications facility operator to perform a

settlement operation, which is a specific feature of a bank operation on the transfer of funds

without opening a bank account. Given such specifics of mobile banking by communications

facilities operators, it is possible to arrive at a conclusion that such settlement technologies are in

essence similar to bank transfer technologies, since they allow to transfer funds in non-cash form

from one bank account to another. There is only one difference: communications facilities

operators act beyond the rules and regulations for performing non-cash settlements which are

established by the Bank of Russia.

When non-cash settlements are performed de facto by communications facilities

operators on the basis of a contract on communications services a lot of questions of legal nature

arise, for instance, what are the grounds for writing off the funds of a subscriber from his/her

bank card by a communications facility operator which is not provided by the bank account

agreement, without the use of a payment document, PIN-code, and without whatever

manipulations with a bank card per se.

Money transfers without opening a bank account

Banking operations on the transfer of funds - which are not related to entrepreneurial

activity of individuals and are performed on the instruction of individuals without opening a

current account - may be executed both in favor of legal entities and in favor of individuals. The

procedure and terms for conducting operations on the transfer of funds are established by the

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bank in conformity with the requirements of laws and regulatory acts of the Bank of Russia and

are brought to notice of individuals in a clear and understandable form, which presupposes

placing information in places where clients are served, including internal structural units of

banks, and are considered accepted by individuals upon the latter’s signing of a document for the

transfer of funds.

The above operation provides for the transfer of funds by a bank on the instruction of an

individual – the payer, who does not have an account in this or other bank, to an account of a

person specified by the payer either in this or another bank, and shall be executed pursuant to

paragraph 2, Article 863 of the Civil Code of the Russian Federation based on the rules of

paragraph 2 “Settlements by payment orders”.

Transfer of funds upon the instruction of individuals without the opening of a bank

account may be of two kinds:

- when a recipient has a bank account in a credit institution and the funds are credited

to this account,

- when a recipient, an individual, has no bank account and the money is transferred to

him without being credited to a bank account.

Depending on the kind of the transfer the composition of data to be filled in by the sender

of the transfer, the content of payment order which is issued by a credit institution, and the

reflection of this operation on the books of the bank will be different.

If an individual who has no bank or savings (deposit) account in a credit institution is a

recipient of funds, the money received is accounted for in the credit institution of the recipient on

the latter’s personal account opened on account 40905 “Current accounts of authorized persons

and unpaid money transfers (postal orders)”. The legal regime of such funds is in many ways

similar to that of funds on a bank account. As specified in the Letter of the Ministry of Finance

of the Russian Federation of 31 October 2006, #03-04-03/28, the specifics of bank money

transfers without opening a bank account lies in the potential risk that either the transfer will not

be completed, or credit risk for the credit institution of the recipient (depending on the settlement

procedure) might arise due to the movement of money from the sender of the transfer to the

recipient, and in the event of interbank transfer, from the sender’s credit institution to the credit

institution of the recipient. Thus, in the event of insolvency of a credit institution the recipient of

the money transfer will acquire the right of claim for the transfer amount.

Banks perform operations on the transfer of funds on the instruction of an individual

without the opening of a bank account on the grounds of a document the form of which is

established by banks, an individual or the respective recipient of funds to whose address

payments are sent, provided that in the document or the bank contract with the recipient of funds

all the details necessary for the transfer of money are specified, as well as the individual number

of the taxpayer (INN) (if any), or any other information on the payer established by Article 7.2 of

Law#115-FZ. On the grounds of the above law, the banks fill in the payment order using form

0401060 (paragraphs 1.2.1 -1.2.3. of Regulations #222-P).

It should be taken into account that though there is no necessity to open a current account

and there is no check of the owner of funds, Law #115-FZ establishes strict liability of banks

with regard to gathering and storing information on the payer and the recipient of payment (with

the exception of money transfers made on the instruction of individuals without opening of bank

accounts performed by credit institutions for the amount not exceeding 15,000 rubles or the

equivalent currency amount).

A credit institution servicing the payer shall be obligated to ensure at all stages:

- monitoring of the availability of information,

- completeness of information,

- transfer of information either in the settlement documents or in some other way,

- conformity of information that is provided (by the payer) to the information available

to the credit institution; and

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- storage of information in conformity with the requirements set to the information on

the payer – individual, specifically: family name, name, patronymic (unless provided

otherwise by law or national custom), unique number assigned to the operation (if

any), individual identification number of the taxpayer (if any), or the residence or

temporary residence address.

If in the settlement document or other document containing the instruction of the payer

there is no information specified above, or if such information is not received in another way, a

credit institution servicing the payer shall be obligated to refuse to execute the order

(instruction).

A credit institution shall be also obliged to ensure the consistency of information

contained in the received settlement document, and the storage thereof in conformity with the

requirements of the law.

A credit institution servicing recipients of transfers shall be obligated to have procedures

necessary to identify the received settlement documents which fail to include the information on

the payer. If there is no such information in the settlement or other documents received, and if

suspicions arise with the officers of a credit institution that the operation is performed to legalize

(launder) criminal gains or financing terrorism, a credit institution shall be obliged no later than

the business day following the day when such an operation was recognized as suspicious to

forward information about such an operation to an authorized body in conformity with this

Federal Law.

As noted above, it does not seem possible to discuss any special form of non-cash

settlements with regard to transfer without opening a bank account, in this case we would rather

speak about provision of services under the contract of money transfer by a bank; such services

with the use of certain elements of non-cash settlements may be provided, for instance, by

communication facilities organizations.

Bank payment agents

In 2009 the Federal Law “On banks” of 3 June 2009, #121-FZ introduced a concept of a

bank payment agent. The respective provisions came into force in full on 1 April 2010. The

adoption of a new Federal Law “On the activity relating to the acceptance of payments from

individuals exercised by bank payment agents” of 3 June 2009, #103-FZ was followed by the

incorporation of respective amendments to the legislation. Thus, the legislator had logically

completed the process started back in 2006 and aimed at the development of the legal framework

ensuring the activity of payment agents (bank and non-bank). The initial goal was to enhance

accessibility of payment and financial services at large for the citizens of Russia.

In 2006 the first attempt was undertaken to regulate this issue through the incorporation

of a new Article (Article13.1) to the Law “On banks”. This Article recognized the activity on the

acceptance of payments from individuals exercised by a commercial organization (which is not a

credit institution) as a bank operation on the transfer of funds of individuals without opening a

bank account. Later on amendments that were incorporated were sharply criticized. They did not

make it possible to resolve all the problems, introduced confusion into the regulation of activity

on accepting payments from individuals, and thus, confirmed the necessity of separate legal

regulation of this sphere. Most participants in the cash payments market would not use the

proposed model of legal relations and continued to exercise the activity thereof basing on the

general civil law principles.

In changing the version of Article 13.1 the objective of the legislator was to set

requirements to bank payment agents similar to those established in Law#103-FZ with regard to

the activity of (non-bank) payment agents on accepting payments from individuals.

The interest of banks to the acceptance of cash funds via bank payment agents (terminals)

as a promising area for the development of the business thereof is related not only to the

23

enormous turnover of funds. From the standpoint of banks, the business on the acceptance of

cash via agents (payment terminals) could be subdivided into two areas:

- acceptance of payments in favor of providers of various services;

- acceptance of payments in favor of a bank and offering clients another service

channel.

The major differences between these areas lie in their role in the business of a bank. The

first area is a source for direct income from remuneration and commission fees. In the second

instance, the acceptance of payments network serves as a tool for the expansion of a bank’s

presence in the retail market.

The acceptance of the own bank payments is different from collection of payments in

favor of providers of services primarily due to the fact that the latter is not a source of direct

income, but a way to promote bank products and to expand retail network. The main goals are to

attract a client through a possibility to perform bank operations with cash without a client having

to travel to the bank’s office, and to bring the point of bank’s presence as close to the client as

possible.

A private client may use bank payment agents (payment terminals) to repay loans,

replenish accounts and cards. Apart from that, a payment terminal may be used for the promotion

of other bank products with the help of contextually targeted advertizing demonstrated on the

screen of the terminal.

The appeal of payment terminals for banks is accounted for by the cost thereof which is 8

to 10 times lower than the cost to open a cash office. Expenses for the regular service of a

payment terminal are also lower than respective costs for an ATM and cash office. The

development of a payment terminals network is particularly profitable to banks working actively

with retail clients and planning to expand their retail network.

The broad use of payment terminals may encourage the development of electronic

banking for retail clients. In such instance one of the major problems could be resolved:

replenishment of an account or a card of an individual who receives salary or wages in cash.

The use of bank agents (payment terminals) is also possible for the purpose of automation

of the bank front office. It is common knowledge that most clients address the bank office with

fairly simple requests: to place the money on a savings account, settlement account, bank card,

pay a fee on the loan, etc. The servicing of such clients could be entrusted to payment terminals,

not operation officers. Ideally, front office bank employees should be personally working only

with those clients whom it is not possible to service without human involvement. It should be

noted that banks can and must combine to the maximum in the activity thereof two major areas

in the use of payment terminals: the more opportunities are opening up, the more attractive is the

complex of services for individuals, and the greater financial dividends will be received by a

bank. Thus, developing business on acceptance of cash via payment terminals a bank is resolving

the following tasks:

- receipt of revenue from a commission fee and remuneration for payments transferred

via terminals;

- automation of bank retail network;

- expansion of a bank and winning a segment of the market at an early stage of

development to ensure stable income in future.

Pursuant to Article 13.1 of the Law “On banks”, shall be recognized as bank payment

agents (i) organizations which are not credit institutions, and (ii) individual entrepreneurs

retained by a credit institutions to

- accept from individuals money for payments of particular designation,

- perform operations with the use of payment cards;

- transfer to a credit institution instructions of individuals to execute settlements on

their bank accounts and draw up documents confirming respective operations.

The above payments and operations should not be related to entrepreneurial activity and

private practice performed by an individual.

24

With regard to designation, payments for the execution of which payment agents accept

money from individuals, may fall into three categories:

- payments to state power bodies, local self-government bodies and institutions in the

jurisdiction of the latter within the range of functions performed by them established

by the laws of the Russian Federation (for instance, payment of taxes, collections,

duties, etc.).,

- execution of money liabilities of individuals with regard to payments for goods,

works, services (for instance, payment for the mobile communications operator

services);

- crediting of money to a bank account of an individual (for instance, to repay a loan).

The activity of a bank agent on accepting money from individuals shall be called

acceptance of payments of individuals.

Currently there exist two forms for exercising activity on accepting money from

individuals: via payment agents whose rights are established by Law #103-FZ, and via bank

payment agents whose activity is regulated by laws on banks and banking activity (specifically,

Article 13.1 of the Law “On banks”).

In contrast to bank payment agents, payment agents regulated by Law #103-FZ may be

retained to perform a narrower range of payments. Payment agents accepting money from

individuals have no right to accept payments when settlements are executed, as provided by the

laws on banks and banking activity. Article 5 of the Law “On banks” contains an exhaustive list

of bank operations and other transactions which a credit institution is entitled to perform.

Respectively, payments made by individuals within the framework of relationships arising from

bank operations and bank transactions cannot be executed via bank agents. Hence, bank payment

agents are granted broader rights in exercising activity on acceptance payments from individuals

as compared with payment agents.

In order to accept payments from individuals a bank payment agent should conclude a

contract with a credit institution under which a bank payment agent shall have the right in his

name or in the name of a credit institution, and for the account of a credit institution accept

payments from individuals; a bank payment agent shall be obligated to make further settlements

with a credit institution, including orders on the disbursement of cash that was received by the

cash office of a legal entity or a cash office of an individual entrepreneur. Insofar, a bank

payment agent shall have no right to reassign to other persons the acceptance of payments from

individuals.

It is noteworthy that in practice a payment agent may conclude contracts on the

acceptance of money from individuals both with a credit institution and a payment operator.

Thus, he at the same time acquires the status of a payment agent by force of Article 13.1 of the

Law “On banks” and by force of Law #103-FZ. Such combination of activity shall not be

prohibited by the legislation.

A credit institution with which a bank payment agent has concluded a contract shall be

obliged to exercise monitoring over the observance of the procedure for accepting payments by a

payment agent in conformity with the rules for executing settlements in the Russian Federation

established by the Bank of Russia, requirements of Article 13.1 of the Law On banks and Law

#115-FZ. Failure to observe the above requirements shall be grounds for a credit institution to

cancel the contract on the activity relating to acceptance of payments from individuals with such

an agent.

A bank payment agent shall be obliged to use the cash register equipment with fiscal

memory and a control tape and observe the requirements of the legislation of the Russian

Federation on the application of cash register equipment. In contrast to a payment agent, a bank

payment agent when accepting payments of individuals shall have the right to use not only

payment terminals, but also the ATMs. As in the case with payment agents, the Government of

the Russian Federation shall be entitled to establish a list of goods, works, services in payment

for which a payment agent may not accept payments from individuals.

25

Pursuant to the Resolution of the RF Government of 15 November 2010, #920, a bank

payment agent shall be prohibited to:

- accept lottery stakes, with the exception of All-Russia government lotteries held in

an on-line regime;

- accept payments for lottery tickets, receipts and other documents certifying the right

to participate in a lottery;

- accept stakes to participate in gambling.

Bank payment agents shall be obliged to observe a whole number of strict requirements

set by Article 13.1 of the Law “On banks”, specifically, to:

- observe the rules of the Bank of Russia on the exeсution of settlements in the Russian

Federation;

- use a separate bank account (accounts) to execute settlements on acceptance of

payments;

- turn over to a credit institution cash received from payers when accepting payments

for the funds to be credited in full to a separate bank account (accounts) of a bank

payment agent;

- use cash-register equipment with fiscal memory and control tape, and observe

requirements of the laws of the Russian Federation on the use of the cash register

equipment when executing settlements in cash.

Acceptance of payments of individuals by a bank payment agent must be followed by an

issuance of a cash register receipt certifying the execution of the respective payment.

Federal law #140-FZ of 27 July 2006, which originally incorporated Article 13.1 into the

Law “On banks”, also introduced amendments to the Law “On the protection of consumer

rights” of 7 February 1992, #2300-1. By force of Article 37 of the Law, in the event cash

settlements are used, liabilities of a consumer to a seller (executor) with regard to payment for

goods (works, services) shall be deemed executed in the amount of money paid and from the

moment the cash amount is paid respectively to the seller (executor) or a credit institution, or a

payment agent who exercises activity on accepting payments from individuals in conformity

with the legislation on banks and banking activity. Therefore, liability to pay for goods (works,

services) shall be deemed executed from the date the money amount is transferred from the

consumer directly to the seller or an institution in charge of transfer of funds to the account of a

seller.

It should be noted that in international practices the objectives of protection of rights of

financial services consumers are understood differently and considerably broader. The conduct

of financial services providers should be determined by three major principles, irrespective of the

kind of the service provided. The following requirements are set thereto:

- clear disclosure of key information on respective issues prior, at the time and after the

performance of a transaction;

- fair and ethical attitude towards clients, and also

- ensuring the tools which would allow to apply for assistance to correct errors,

consider complaints and resolve disputes effectively.

Given the above, it is possible to draw a conclusion that the rule incorporated into the

Law on Consumer protection is relevant not so much to the protection of the rights thereof, as to

the civil law issue about the moment of execution of obligations. In violation of general legal

logics the issue is resolved differently depending on whether an individual who transfers cash for

making payment is recognized to be a consumer or not. Another violation of systemic approach

arises due to the fact that Article 37 speaks exclusively about the obligations of a consumer to a

seller (executor) regarding payment for goods (works, services). Meanwhile, payment agents

may accept money as payment of taxes or to be credited to a bank account. The legislation fails

to provide a direct answer to the question from which moment the tax is considered paid or funds

are considered credited to a bank account. Moreover, Article 37 mentions only payment in cash.

As noted above, the transfer of money on the instruction of an individual without the opening of

26

a bank account is classified by the Bank of Russia as non-cash settlements. As a result, the rights

of a payer-consumer who selected as a method of payment a bank transfer without the opening

of an account appear to be infringed upon (such payer will execute his/her obligation only

crediting the funds to the account of the recipient) as compared to payments via payment agents.

The new Part of Article 155 (part 15) of the Housing Code of the Russian Federation

(which entered into force on 1 January 2010) allows making settlements with the lessees of

residential premises of state and municipal housing stock and owners of residential premises, and

collecting payment for the residential premises and utility services not only by the lesser of the

housing premises himself, a management organization, partnership of housing owners, housing

or another specialized cooperative, and in instances specified in Article 164 of the RF Housing

Code – by a contractor or a resource supply company, or the representatives of the above

persons, but also by a payment agent or a bank payment agent who performs such activity in

conformity with the legislation on banks and banking activity. The above amendment was

incorporated for the convenience of the Russian citizens.

Part 3 of Article 32.2 of the RF “Code on administrative offences” provides that the

amount of an administrative fine shall be paid or transferred by a person brought to

administrative liability either to a bank or another credit institution, or a payment agent who

exercises activity on acceptance of payments from individuals, or a bank payment agent who

exercises such activity in conformity with the legislation on banks and banking activity.

Despite its obvious pros, the new version of Article 13.1 of the Law “On banks” is far

from being perfect. A number of legal scholars stick to the view that this Article deals with a

bank operation performed by a subject who has no banking license. The procedure for the

application of this rule establishing that all the details printed on a cash receipt should be clear

and easily readable for at least six months should be clarified. If the above term expires and it is

impossible to establish the content of the inscription on a cash receipt, further procedure for the

protection of consumer rights remains vague. Apart from that, it is proposed to determine the

criteria for the liability of a bank payment agent as a direct participant of legal relations.

Postal orders

Postal order remain today the most popular way of money transfer in the territory of

Russia. In 2009, the number of postal orders accepted by the Post of Russia reached 134 million.

The tariff revenue received from this service amounted to 8.5 billion rubles.

Prior to the late 1990-s, postal orders were executed with the use of the so called “paper

technology”. The swiftness of money transfer was not high and the execution of a postal order

would take approximately two weeks. With that level of service the Post of Russia could not

compete with the bank money transfer system. Starting with 2002, the Post of Russia launched a

system of electronic money transfers, that is, a uniform single system of postal orders which is

based on rendering actually all financial services.

In order to provide a service today, the Post of Russia is using its own electronic system

of postal orders allowing to execute remittances with the acceptance or payment of money via

non-cash settlements, apart from traditional postal orders (with the acceptance and payment of

the postal order in cash). This option for service is actively used when loans are repaid or issued,

in settlements with the suppliers of goods and services. Introduction of the technology of placing

bar-codes on the forms of postal orders allows to considerably save time on servicing clients.

Upon the results of 2009, the Post of Russia exchanges postal orders with 16 countries, out of

this number electronic communication channels are used with Kazakhstan, Ukraine, Belarus,

Armenia, Azerbaijan, Uzbekistan, Moldova, Estonia, Kirgizia, Latvia, Lithuania, China and

France.

The issuance of cash to bank card holders is executed in postal service offices in 80

subsidiaries of the Post of Russia where over 13 thousand POS-terminals are installed.

27

Acceptance of payments in favor of third persons (payments for utility services, for

services of electric communication and mobile communication, the Internet and cable TV,

payment of various duties, fines, etc.) is one of the most dynamically developing areas of

financial activity of the Post of Russia. The number of payments accepted in 2009 amounted to

642 million, while their total volume in money terms reached 287.5 billion rubles. Insofar, the

Post of Russia accepted payments within the framework of 8 thousand contracts concluded with

the housing and utility complex organizations, operators of electric communications facilities,

mobile communications facilities and cable TV operators, Internet providers, educational

institutions, etc.

Upon the results of 2010, 2,000 terminals functioned in post offices allowing to

independently pay for the services of over 120 cellular communications facilities operators, cable

TV, and Internet providers in 80 regions of Russia.

Pursuant to the Federal Law “On postal service” of 17 July 1999, # 176-FZ (hereinafter,

Law#176-FZ) a postal order is a service provided by organizations of Federal postal service on

acceptance, processing, transportation (transfer), delivery (serving) funds with the use of

networks of postal and electric communications.

A postal order should be distinguished from a bank transfer of funds. On the grounds of

Article 2 of the Law “On postal service”, #176-FZ, postal orders presuppose direct service of

money to an individual, not crediting the funds to a personal account, which is done in a case of

a bank transfer. In contrast to credit institutions, postal service organizations do not settle the

accounts when transferring a postal order and no risk inherent to banks might arise in this case.

Payments with the use of a current account

Opening a current account (or receipt of a payment card) via a bank agent opens up most

broad opportunities for bank clients with regard to the use of all forms of non-cash payments. At

the same time, a client may use various ways to access his/her account: transfer payment orders

either in person, or via a bank agent, perform operations with payment cards via a bank agent,

get out-of the-office (branchless) access to a bank account with the use of the Internet, stationary

or mobile telephone.

Non-cash settlements are executed by individuals with the use of a current account

opened by banks in conformity with the requirements of Chapter 46 of the Civil Code of the

Russian Federation and the Instruction of the Central Bank of Russia of 14 July 2006, #28-I.

Writing off funds from the current account of an individual is executed by a bank upon the

instruction of the owner of the account, or without such an instruction in instances provided for

by the laws, on the grounds of settlement documents within the amount of funds on the account.

No records of non-paid settlement documents to be attached to the current account of an

individual are maintained. If there are neither any funds at the moment of writing off, nor the

right to receive a loan (including an overdraft), the settlement documents are not subject to

execution and shall be returned to the payers or recoverers (claimants) in accordance with the

procedure established by the Regulations “On non-cash settlements in the Russian Federation”.

It is possible to execute non-cash settlements on the current account in all forms provided

for by the law: by payment orders, letters of credit, encashment while keeping in mind the

specifics established by the Regulations of the CBR # 222-P.

The transfer of one’s rights by an individual to dispose of the funds on the account shall

be allowed on the grounds of the Power of Attorney drawn in conformity with the requirements

of Article 185 of the Civil Code of the Russian Federation. Such Power of Attorney may be

certified by an authorized bank officer and verified by an impression of a bank’s seal. The

powers of the authorized person (agent) shall be terminated by filing a respective request to the

bank.

28

Payment orders. An individual may issue to a bank a right to draw up a settlement

document in his/her name (provided there is such a condition in a bank account agreement). In

this instance the form is filled in by the bank in the name of a client on the grounds of the client’s

application filled in in the form developed by the bank. The settlement document drawn up by

the bank in the name of the client shall be issued with the signatures of the bank’s executives and

an impression of the bank’s seal.

Settlement documents may be issued as documents in paper or electronic form with the

use of analogues of the true handwritten signature in accordance with the procedure established

by the Regulations on non-cash settlements in the Russian Federation and a bank account

agreement between a bank and an individual.

Payment orders shall be accepted by a bank or drawn up thereby upon the application of

an individual only if there are funds on the current account of a client (or for the account of the

overdraft provided by the bank).

If there is a provision in a bank account agreement which gives the right to a bank to

draw up a settlement document in his name, the individual may grant the right to a bank to

periodically transfer the funds from his current account. .

Partial payment of payment orders shall not be allowed.

Collection orders. Collection orders shall be used

- in execution of non-cash settlements by individuals with the availability of a current

account,

- for recovery of funds on the grounds of execution orders, if the latter are submitted

via the servicing bank,

- in instances provided by the main contract, provided the servicing bank is granted the

right to write off funds from the account of the payer without the latter’s instruction.

In the event funds are written off the individual’s account on the grounds of collection

orders, the rules shall be applied established by:

- the Regulations On the procedure to execute non-cash settlements by individuals in

the Russian Federation, if a claimant is an individual;

- the Regulations on non-cash settlements in the Russian Federation, if a claimant is a

legal entity.

If the funds on the current account of an individual are not sufficient, they shall be written

off on the collection order within the funds available on the (bank) account.

Internet and mobile banking

Let us consider various possibilities of branchless banking services when a bank client

having opened an account via a banking agent further on issues an instruction directly to a credit

institution.

The development of a branchless banking system is extremely urgent for Russia. The

obvious advantage of the system are as follows:

- centralized processing of information presupposing the execution of all computer

programs on the terminal servers and installation on the clients place of only client

terminal devices;

- efficient work with branches allowing to resolve the issue of prompt gathering of

information from sites;

- high degree of protection of resources due to the total body of information being

concentrated in a single place monitored and protected by the bank’s security service;

- high reliability of transactions determined by the transfer of the execution of the

client’s part from potentially unreliable personal computers to fault tolerant terminal

servers;

- possibility to work on communication channels with low traffic-handling capacity.

29

Today credit institutions offer a rather broad variety of payment systems and services to

the clients thereof. Some of them limit their activities to full-scale management of funds via the

Internet: maintaining accounts, purchase and sale of foreign currency, operation in the securities

market, opening and replenishment of bank deposit accounts, payment for housing and utility

services and other payments. Others provide for a possibility to perform operations with bank

cards, and also allow retail and corporate clients to draw up documents in an on-line regime and

objectively assess their financial potential for receiving and servicing a loan. Still the others are

engaged in interactive trading in shares, options, and futures offering clients an “electronic

broker” system.

Internet banking allowing management of bank accounts and cards via the Internet and

web browser in an on-line regime and also supporting all kinds of financial documents has

mechanisms of encryption and electronic digital signature. In order to work via the Internet

banking system it is sufficient for a client to have appropriate software supporting the Internet

connection. At the same time, the possibility to use another person’s computer is ensured by the

necessity to enter identification (authentication) client’s login and password and does not require

an unconditional availability of a strictly defined personal computer. Since the procedure for

getting connected to the Internet banking system and working with the system is performed out-

of-the office by way of filling in various sample forms and letters to the bank, the actual

presence of the client in the office of the above bank is not required either.

Mobile banking provides for the management of bank accounts and cards from personal

computers, communicators and smart phones. It works in an online regime; it supports all kinds

of financial documents.

Phone-banking opens access to bank accounts and cards from a smart phone. Information

is provided on current balances, an account statement for a certain period may be sent to a fax-

machine, cards may be replenished and blocked, and telephone payments can be executed.

However, there is no special legislation to govern the specifics of branchless banking services.

Payment cards

Pursuant to Article 13.1 of the Law “On banks”, a bank payment agent has received the

right to perform operations with payment cards, transfer instructions of individuals to a credit

institution regarding the execution of settlements on the bank accounts thereof and draw up

documents confirming the respective operations. Thus, all operations with payment cards,

including those with the use of the ATMs and POS-terminals, may take an important place in the

activity of bank agents.

We would like to single out certain essential specific features of regulation in this sphere

which allows to expect significantly growing demand in bank cards in models of bank agency

services:

- specifics of identification, authentication and ascertaining of the personality of a bank

card holder;

- availability of such kind of payment cards as pre-paid cards the use of which does not

require the identification of the holder;

- launching of a Federal project Universal Electronic Card with the account of a broad

set of functions of the respective card.

As of the early 2011, the number of payment cards issued in the Russian Federation

exceeded 135 million. Rapid development of this market in the past years is accounted for by a

number of factors, specifically:

- high level of practicability, convenience and benefits for all participants in

settlements;

- active functioning of international payment systems;

30

- mass-scale use of card projects for payment of wages and salaries when the

employers use cards as a convenient was to pay salaries to their employees;

- development of the ATM and POS-terminals networks;

- decrease in the commission fees for the servicing of a card account and drawing cash

from the account;

- launching of co-branding projects.

The Regulations on the issue of bank cards and operations performed with the use of

payment cards approved by the Central Bank of Russia on 24 December 2004, #266-p is the

basis for legal regulation of settlements with the use of bank cards. Regulations #266-P define

the key concepts and lists the kinds of bank cards, however, fails to provide a definition to the

very concept of a “bank card”. Apart from that, some other concepts (“authorization”,

“imprinter”, “processing”, “acquiring”) which were previously defined in CBR Regulations #23-

P were not confirmed by Regulations #266.

In general terms, a bank card is understood as a tool for non-cash settlements designed

for performing operations by individuals with money which rests with the issuer of the

respective bank cards. The doctrine specifies other aspects of the concept “bank card” as well,

specifically, the latter is regarded as

- a means for the identification of its holder;

- a means of access to the bank account;

- a means to draw up settlement and other documents subject to payment for the

account of a client.

Despite the similarity of settlements with the use of bank cards with the known forms of

non-cash settlements, specifically (i) concluding a contract with a servicing bank on the opening

of an account and performing operations on issuance, drawing from and transfer of funds from

the account of a client – a cardholder, (ii) a stage-by-stage mechanism of settlements with the use

of bank cards, some authors consider settlements with cards a special form of non-cash

settlements.

Accession of a bank to one of the well-known payment systems through the issuance,

distribution and acquiring of bank cards of a certain kind shall be a mandatory condition for

implementing settlement legal relationships with the use of bank cards.

A credit institution shall have the right to issue bank cards of the following kinds:

settlement (debit) cards, credit cards and pre-paid cards.

A settlement (debit) card is designed for performing operations by the holder thereof

within the limits of the money amount (the calculated overdraft limit) established by an issuing

credit institution; the settlements on such operations shall be executed with the client’s money

that is available on his bank account, or a loan issued by an issuing credit institution to the client

in conformity with the bank account agreement in the event of insufficiency or absence of funds

on the client’s bank account (overdraft).

A credit card is designed for performing operations by the holder thereof, settlements on

which shall be performed with the money provided by an issuing credit institution to the client

within the established limit and in conformity with the terms of the loan agreement. Insofar a

bank account might not be opened to a client.

A prepaid card shall be designed for performing operations by the holder thereof,

settlements on which shall be executed by an issuing credit institution in its own name; a prepaid

card certifies the right of claim of the cardholder to the issuing credit institution with regard to

payments for goods (works, services, results of intellectual activity) or withdrawal of cash. . An

issuing credit institution shall be obligated to determine the maximum amount within which it

undertakes liabilities on one prepaid card (the limit of a prepaid card). Regulations #266-P

recommend that a credit institution should establish a maximum amount of the prepaid card limit

equaling 5 thousand rubles or the equivalent amount in foreign currency.

31

Kinds of payment cards for individuals

Settlement (payment)card Credit card Prepaid card

Client’s bank account Is opened any time May be absent Noneт

Access to a loan Only with the availability

of an overdraft on the

account

Within the crediting limit None

Identification at the time

of acquiring

Mandatory Mandatory Optional, up to 15,000

thousand rubles

Issuer Bank A bank or a credit

institution (if an account is

not opened)

A bank or a credit

institution

A credit institution (with the exception of non-bank credit institution) shall have the right

to issue settlement (debit) cards and credit cards for individuals, legal entities and individual

entrepreneurs, and also prepaid cards for individuals. A non-bank clearing institution may issue

settlement (debit) cards for individuals. A non-bank clearing institution may issue settlement

(debit) cards for legal entities and individual entrepreneurs, and prepaid cards – for individuals.

A credit institution shall issue bank cards for individuals on the grounds of a contract providing

for the performance of operations with the use of bank cards. Pursuant to paragraph 1.12 of

Regulations #266-P, settlement and credit cards shall be issued on the grounds of a bank account

agreement providing for the performance of operations with the use of settlement (debit) cards,

credit cards, which is concluded in conformity with the RF legislation.

A credit institution shall provide funds to clients for settlements on operations performed

with the use of settlement (debit) cards by crediting the above funds to their bank accounts.

A credit institution shall provide funds to clients for settlements on operations performed

with the use of credit cards by crediting the above funds to the bank accounts thereof, and also

operations performed without a client’s bank account, provided this is stipulated by a loan

agreement in the event the funds are issued in the currency of the Russian Federation to the RF

individuals, and in foreign currency to individuals who are non-residents. The register of

payments received by a credit institution shall be a documentary confirmation that a loan was

issued without a bank account, unless provided otherwise by a loan agreement. Thus, at the time

of issuance of credit cards without opening a bank account a unique opportunity arises to fully

interact with the client out of the bank office. An account is not opened to the client, therefore,

by force of Law#115-FZ, his personal presence is not needed. We tend to believe that credit

cards may be issued and the client’s documents may be gathered exclusively with the use of

postal services. Insofar, a loan may be repaid via the network of terminals and ATMs (with the

function of cash-in).

When a client-individual performs operations with the use of a prepaid card, a bank

account agreement (a savings account agreement) shall not be concluded with an individual.

The procedure and the terms for performing operations with the use of a prepaid card

shall be brought to the notice of a client – individual in a clear and understandable for

familiarization form, including placement of information in places of servicing clients.

A client-individual has an opportunity to perform operations with the use of a bank card

listed in paragraph 2.3 of Regulations #266-P, specifically:

- receive cash in the currency of the Russian Federation or foreign currency in the

territory of the Russian Federation;

- receive cash in foreign currency beyond the territory of the Russian Federation;

- pay for goods (works, services, results of intellectual activity) in the currency of the

Russian Federation in the territory of the Russian Federation, and also in foreign

currency beyond the territory of the Russian Federation;

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- perform other operations in the currency of the Russian Federation with regard to

which the RF laws do not establish prohibition (restriction) for the performance

thereof;

- perform other operations in foreign currency with the observance of the requirements

of the RF currency legislation.

Let us dwell in greater detail on the procedure of client identification at the time of

issuance of a payment card and performance of operations therewith. A credit institution shall be

obliged to identify the cardholder in conformity with paragraph 1 , Article 7 of Law #115-FZ, in

accordance with the procedure established by Regulations #262-P.

When operations with the use of settlement (bank) cards are performed, identification

shall be conducted on the basis of the details of the settlement (bank) card and the codes

(passwords). Thus, when ATMs and terminals are used identification is replaced by

authentication.

In operations with prepaid cards a mandatory condition, as follows from subparagraph 1.1,

paragraph 1 of Article 7 of Law#115-FZ, which allows a credit institution not to identify a client

– individual is performance by a credit institution of operations on acceptance of payments from

individuals, including operations on acquiring prepaid cards for the amount not exceeding

15,000 rubles or the equivalent amount in foreign currency. Given the above, when an amount

not exceeding 15,000 rubles or the equivalent amount in foreign currency is accepted from a

client individual to acquire a prepaid card, if the employees of a credit institution do not have

suspicions that this operation is performed to legalize (launder) criminal gains or financing

terrorism, the procedure of identification of a client shall not be carried out. At the same time,

when a client-individual applies to a credit institution in order to withdraw cash placed when

acquiring a prepaid card, the identification procedure should be carried out by a credit institution

with the account of requirements set by Law#115-FZ , since in this situation there is no

mandatory condition applied, as established by subparagraph 1.1, paragraph 1 of Article 7 of

Law #115-FZ, specifically, an operation on acceptance payment from a client-individual is not

performed.

In rendering services of the so-called mobile banking, mobile communications facilities

operators offer settlement services on bank card accounts via a mobile phone. In this connection

direct inconsistencies and contradictions may be pointed out in the model implemented by

operators with the requirements set by Article 13.1 of the Law “On banks”.

For instance, it is not possible to get an appropriate cash register receipt in paper form in

such operations, at least immediately after completing the settlement operation. One could object

saying that the law could be amended insignificantly allowing to use as a confirmation a

respective SMS-message received by the subscriber’s mobile phone instead of getting a paper

form cash register receipt, and the problem would be resolved. However, the problem lies not

only in the absence of a legal possibility to replace a cash register receipt by an SMS-message

sent to the subscriber’s mobile phone. For the purposes of taxation, and also from the standpoint

of protection of consumer rights, the use of cash-register equipment in the technology of mobile

banking services does not seem very effective. This is accounted for by the fact that from a legal

standpoint, a communications facility operator accepts funds from a subscriber as payment for

communications services (which is confirmed by the information stated in the receipts issued by

a terminal, an ATM, etc.), and not for the purpose of providing other services. It appears that

formally a communications facility operator, while performing mobile banking operations,

provides a service different from the service the subscriber is paying for.

Neither federal laws, nor regulatory acts by the Bank of Russia contain a prohibition to

accept documents from a client-individual by an officer of a credit institution or a person

authorized by a credit institution who is not an employee thereof out of the office of acredit

institution. At the same time, with regard to client identification, the laws of the Russian

Federation relating to countering legalization (laundering) of criminal gains and financing of

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terrorism imply that organizations performing operations with money and other assets

independently conduct the identification of persons who are serviced by them.

The acceptance of documents certifying the personality of a client-individual, check of

documents being properly drawn up, the completeness of information provided and the reliability

thereof, certification of copies of documents may be performed both by an officer of a credit

institution and a person authorized by a credit institution who is not an employee thereof, out of

the office of a credit institution and forwarded to a credit institution, also with the use of

respective communication facilities (postal, electronic). In the opinion of the Bank of Russia, the

laws of the Russian Federation, including Regulations #266-P do not contain any restrictions

regarding the place of issuance (transfer) to a client of an issued bank card.

A broad choice of options regarding the receipt of identification documents (by post, for

instance) and the transfer of a bank card (with a courier, for instance) create prerequisites for a

new format of banks which do not have retail points of presence, or exercise the activity thereof

exclusively via bank agents.

We would like to consider in greater detail three card-oriented business models based on

the distribution of

- settlement cards with the right to an overdraft via cellular communications store

(“Svyasnoy” Bank );

- credit cards without opening of a current account to a holder which are sent via the

Post of Russia or the bank’s courier service to a client (Tinkoff Credit Systems bank);

- “kukuruza” “quasi-reloadable” prepaid cards distributed via communications store

“Evroset ” (Euro network) and other partners of the program implemented with the

loan funds of Non-Credit Clearing Institution “Payment Center”, along with other

funds.

It is worthwhile to pay attention to the incorporation of a card element into the mobile

banking and terminal networks schemes. Both settlement and payment cards may be used in the

process.

In the absence of special regulation pre-paid bank cards play the role of an e-money

substitute. Specifically, such cards are used in mobile banking models implemented without the

use of a bank account.

Schemes for the management of card accounts via a mobile phone are currently broadly

applied. Some authors specify, however, that such schemes seem dubious from a legal

standpoint. The matter is that a subscriber issuing an instruction to a communications facility

operator to transfer funds from his /her bank card account to an account of a mobile

communications operator does not have a possibility to give an instruction in his own name to

draw up a document confirming the performance of the respective operation on his/her bank

account card, which considerably complicates the judicial protection of consumer rights in case

of a dispute. Such an instruction is received in the name of a communications operator and

confirms exclusively the fact that payment (prepayment) has been made from the subscriber’s

bank card for a mobile communications service.

Along with the failure to receive a cash register receipt with the established details by a

subscriber, cash register equipment with fiscal memory is not used either, which is a serious

violation of the law. The legislator acts consistently with regard to this issue. In order to avoid

ambiguous interpretations of legal rules, the RF Federal Law “On incorporation of amendments

and amplifications to Articles 13.1 and 29 of the Federal Law “On banks and banking activity”

unequivocally states that cash register equipment with automated printing of cash register

receipts and issuance thereof to individuals should be used not only when payments are accepted

from individuals, but also when individuals perform operations with the use of payment cards,

and when instructions of individuals on the execution of settlements on their bank accounts in

operations with the use of credit cards are transferred to credit institutions.

Another example of a specific symbiosis of card and terminal projects is the issuance by

credit institutions of “virtual cards” (such as Visa Virtuon, Master Card Virtual) designed for

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payment for goods and services in the Internet. In contrast to classic payment cards, they allow

to make such payments more secure, since there is no necessity to enter on the web-site the

details from one’s salary or credit card. Recently an opportunity appeared to acquire virtual

prepaid cards in the ATMs of credit institutions, and also purchase them for cash in payment

terminals (within the framework of the agent banking model) after having provided the number

of one’s mobile telephone to which an SMS-message will be sent with the number of card, its

effective term, and the protection code. The maximal price of such card is 15 thousand rubles,

the minimal is 300.

Enhancing financial literacy and continuous education of the population are a sound

foundation for introducing innovations into the system of retail card payments. In its activity the

Bank of Russia is developing issues relating to the financial literacy of the population and

continuous education in the sphere of retail payment services. In order to develop this area the

Bank of Russia issued a Memorandum “On measures towards secure use of bank cards” of 2

October, #120-T, and the Recommendations “On disclosure of information and major terms for

the use of bank cards, and the procedure for resolving conflicts relating to the use thereof”

(Letter of the Central Bank of the Russian Federation of 22 November 2010, #154-T). The

Memorandum and Recommendations are aimed to increase awareness of clients about measures

relating to the security of a bank card, its details, PIN and other data, and also to bring down

potential risks in performing operations with the use of a bank card in an ATM, when executing

non-cash payments for goods and services, including those paid for via the Internet.

Recommendations contained in the Memorandum were supported by the Association of the

Russian Banks and Association “Russia” who noted the topicality and importance thereof.

Comparison of four payment services: Non-cash transfer of funds via payment order, non-cash transfer of funds with the use of

a bank card, non-cash transfer of funds without opening an account, transfer via a bank agent.

Payment order Bank card Transfer without

opening an

account

Bank and

payment agent

Possibilities of choice for the

payment recipient

The broadest

possible choice

Limited by a set

of functions of the

ATM and the

availability of

POS terminal

The broadest

possibilities

Limited by a set

of functions of the

terminal

Moment of execution of

obligation regarding payment

for goods, works, services, )

From the moment

of crediting to the

account of the

recipient

From the moment

of crediting to the

account of the

recipient

From the moment

of crediting to the

account of the

recipient

From the moment

the funds are

transferred to the

agent

Documentary confirmation of

the fact of payment

Cash order Document on

operations with a

card

Cash order Cheque

Identification of the payer Identification is

carried out, in

branchless

banking -

authentication

Authentication Present Authentication

Accessibility Low (with the

exception of

branchless

banking)

High Low High

Possibility of out-of the office

payments (branchless)

Available Available Not available In the agent’s

office

Swiftness(rate) of payment

execution

Not high in

interbank

transfers

Instantaneous

with on-line

authorization

Not high in

interbank

transfers

Instantaneous

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Cost of payment for the

consumer

Low Free on condition,

service of the

account

High The highest

possible

Cost of payment for the

person providing payment

service

Depends on the

area

Is determined by

the tariff of the

payment system

High Low

Level of consumer rights

protection

The highest

possible

Average Average Low

Universal electronic card

Extraordinary prospects of the bank payment agents’ activity may be related to the

implementation of the program on providing public and municipal services in electronic form.

Firstly, an electronic, that is, branchless form of providing such services reaches its target

only when such services are paid for out-of-the office.

Secondly, part of this program presupposes the issuance of a universal identifier (an

electronic card - UEC) to each Russian citizen.

Thirdly, the UEC will have a bank application (enclosure), which in fact means that a

bank account will be opened to an individual in one of the Russian banks to be further used for

non-cash settlements.

As specified in the Strategy for the development of the banking sector in Russia for the

period of up to 2015: “The Government of the Russian Federation pays great attention to

increasing non-cash payments in the Russian Federation. In this connection work will continue

to implement a complex of measures aimed at introducing a universal electronic card of a citizen

with the incorporation of a special bank application.”

Within the framework of the Federal target-oriented program “Electronic Russia” (2002-

2010) the Federal Law “On organizing the provision of public and municipal services”

(hereinafter Law#210-FZ) was adopted. The law is aimed to organize a complex provision of

public and municipal services in electronic form with the use of a single portal of public and

municipal services, multifunctional centers, universal electronic cards (for individuals) and other

facilities.

Provision of public and municipal services in electronic form

The Law provides for the creation of multifunctional centers to provide services

(hereinafter, MFC) operating in a “one-window” regime. In order to receive a service it will be

sufficient for an applicant to send a request to an MFC. It will not be needed anymore to gather

documents and perform other actions relating to application to government agencies.

An MFC will independently, without the participation of an applicant, request the

necessary documents and information in government bodies ensuring interaction with and

getting all the approvals from them, it will conduct monitoring over the execution of requests

and will issue documents to applicants upon the results of provision of services. Either the bodies

which provide public and municipal services, or the MFC shall have no right to demand that an

applicant should turn for the provision of additional services.

From 1 July 2011, government structures will be prohibited to demand from an applicant

that he/she provide documents and information which is at the disposal of other bodies

representing public, municipal and other services, and also demand to perform actions, including

approvals, necessary to provide such services, unless provided otherwise by regulatory legal acts.

Pursuant to the general rule, public and municipal services will be free of charge, with the

exception of those for which, in conformity with legal acts, state duty shall be paid or services

shall be performed at the expense of an applicant. Payment shall be made out-of-the–office in

electronic form via a single portal.

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Today a Single Portal of Public and Municipal Services is functioning at the web address:

www.gosuslugi.ru. Currently the portal serves only as a source of information on the procedure

for providing public services, and also contains samples of documents.

The Government of Russia, by Order #1555-p of 17 October 2009, approved a plan of

transition to the electronic form of providing public services and execution of public functions

by federal executive power bodies. In conformity with the above Order, it is planned in future to

ensure filing of documents and applications via a single portal and to monitor provision of

services and the results thereof on a number of top priority and socially relevant public services

which will include, specifically:

- state registration of legal entities;

- acceptance of tax returns;

- registration of employers in the RF Pension Fund;

- state registration of rights to real estate and transaction therewith;

- registration and technical inspection of transport vehicles;

- taking qualification exams and issuance of driving licenses.

Banking services with the use of universal electronic card (Universal E-card)

Provisions of Law #210-FZ relating to the introduction of the universal electronic card

may influence directly the expansion of bank services in the Russian Federation, including

services with the use of bank agents. The universal electronic card is a physical carrier

containing information about the cardholder stored on it both in visual(graphic) and electronic

(machine-readable) form and providing access to information about the cardholder with regard to

receiving public, municipal and other services. A citizen of the Russian Federation may be

holder of the universal e-card, and in instances provided by Federal laws, a foreign citizen and a

stateless person.

The state provides the following most relevant services which may be received with the

universal e-card:

- healthcare services – out-of-the office registration for a visit to a doctor, change of the

General Medical Services policy(card GMS policy);,

- pension insurance services: receiving awarded pensions, choice of the management

company, information about the status of the account, etc. (card-policy of pension

insurance);

- transportation services – using public transport, including railroad, in longer term

perspective – payments for parking lots, use of toll roads, etc.;

- paid-for services: the use of the existing bank infrastructure (including payment for

utility services, fines, duties, etc.);

- educational services: filing applications to enter educational institutions, pupils’ and

student’s cards, etc.;

- other public services: payment of taxes, registration of residence, receiving a

passport, etc.;

- services of other organizations.

Universal E-card should replace a whole number of documents used today, including the

policy of mandatory medical insurance, insurance certificate of mandatory pension insurance,

and bank cards. Apart from that, it will open access to regional and municipal electronic

services. Mass-scale issuance of universal E-cards to all citizens of Russia who reached 14 (upon

application thereof) shall start on 1 January 2012.

Universal E-card will have special (irrespective of independently functioning) electronic

applications designed for authorized access of such cardholder to financial, transport or other

services, including public or municipal ones. Federal electronic applications will ensure the

receipt of public services and services of other organizations in the territory of the Russian

Federation in conformity with Federal laws or resolutions of the Government of the Russian

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Federation. Regional electronic applications will respectively ensure the receipt of public

services and services of other organizations pursuant to the legal regulatory acts of the

constituent subject of the Russian Federation. Municipal electronic applications, respectively,

will provide for the receipt of municipal services and services of other organizations in

conformity with municipal legal acts.

Federal applications which should be included into the card pursuant to Law#210-FZ

shall ensure:

1) identification of the holder of the universal E-card for him/her to get access to public

services and services of other organizations;

2) receipt of public services in the system of mandatory health insurance (policy of

mandatory health insurance);

3) receipt of public services in the system of mandatory pension insurance (insurance

certificate of mandatory pension insurance);

4) receipt of banking services (electronic banking application).

The list of other Federal electronic applications which must be included into the E-card

shall be established by the Government of the Russian Federation. The first and the fourth items

in the above list seem to be of particular interest. The use of the universal E-card for the

identification of its holder (identification application) may open up additional opportunities for

the identification of individuals in providing banking services via bank agents. It is expected that

a universal E-card will raise the level of reliability in identifying individuals when they apply for

various services. In its turn this might provide additional opportunities for monitoring (including

monitoring in out-of-the-office and on-line regimes) over the due execution by bank agents of all

the necessary procedures when identifying individuals. Hence, this process will contribute to the

changes in the legal regulation in the area and serve additional incentive for banks per se to

expand the sphere of the services thereof using bank agency relationships.

As of today, the following industry for the acceptance of universal E-cards at a local level

is proposed:

- the bank access infrastructure (of 50 thousand devices);

- infomats in MFCs and other places;

- card scanning devices in transport vehicles,

- personal readers (scanners ) in households of individuals;

- card-reading (scanning) infrastructure in health service system.

Possibly, MFCs will be used to confirm the identification of individuals for the purposes

of access to additional banking services.

It is expected that a universal E-card should include among other federal electronic

applications an application ensuring the receipt of banking services (electronic bank enclosure).

In order to organize provision of public and municipal services with the use of universal

electronic card, the Government assigned OJSC Universal Electronic Card (OJSC UEC) as a

Federal authorized organization exercising the functions of a coordinator and an operator of the

project to implement universal electronic card (Order of 12 August 2010, #1344-p).

Shareholders of OJSC UEC are Sberbank Rossii (Savings Bank of Russia) JSC (34%

share in the Charter capital), OJSC URALSIB (33% share in the Charter capital), AK BARS

Bank (33% share in the Charter capital.

Pursuant to Law #210-FZ, as an authorized organization OJSC UEC has the following

functions in the project, to:

- organize interaction of the authorized organizations of the subjects of the Russian

Federation in charge of implementation of the project to introduce a universal E-card,

each organization to be in charge of its specific region;

- maintain a single register of universal e-cards with the information about universal e-

cards issued in the territory of the Russian Federation;

- maintain a register of Federal, regional and municipal applications placed on the

universal E-card;;

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- other functions determined by the Government of Russia.

Being a central actor of the universal electronic card system, OJSC UEC shall manage the

portal of commercial services provided within the universal E-card infrastructure, including

personal accounts of individuals and a data base of services rendered to them.

As a Federal authorized organization OJSC UEC, upon agreement with the federal

executive power body exercising the functions relating to legal regulation in the sphere of

analysis and forecasting of social and economic development, the federal executive power body

carrying out functions on the development of public policy and normative and legal regulation of

banking activity, and the Central Bank of the Russian Federation, shall be establishing the rules

for the development, connection and functioning of the electronic bank application and technical

requirements thereto.

The banks that concluded a contract with OJSC UEC shall connect electronic bank

application of the universal E-card and ensure the functioning of the application in conformity

with the laws on banks and banking activity.

Law #210-FZ establishes that for the use (activation) of the electronic bank application an

individual or a person acting in his/her name on the basis of a notarized Power of Attorney shall

apply either to a bank to conclude a contract providing for the services with the use of an

electronic bank application of the universal E-card, or to an authorized organization of a

constituent subject of the Russian Federation acting in the name of the bank on the grounds of

the rights established by the contract concluded between them. Hence, a possibility is directly

provided to use the services of bank agents to render services with the use of the bank

application of the universal E-card.

Authorized organizations of the constituent subjects of the Russian Federation

determined by the highest executive state power body of the Russian Federation shall

manifacture, issue and service universal Electronic cards. Legal entities and territorial bodies of

Federal executive power, the Pension Fund of the Russian Federation can execute the functions

of an authorized organization of a constituent subject of the Russian Federation on the grounds

of agreements concluded by the highest executive state power body of the subject of Russian

Federation with the federal executive power body and the Pension Fund of the Russian

Federation. Several subjects of the Russian Federation may determine as an authorized

organization of the subject of the Russian Federation the same legal entity. As of today, 52

authorized organizations have been established.

It is expected to introduce the following procedure for the selection by universal E-card

holders of a bank servicing the bank application. During 2012, cards will be issued upon

applications of individuals. An individual who filed such an application will be selecting a bank

out of the banks that concluded a contract with OJSC UEC. The information on the choice of a

bank shall be forwarded by an individual to the body (organization) determined by the subject of

the Russian Federation. If an individual timely forwards the information about the choice of a

bank, a universal e-card with an electronic bank application of the bank of his/her choice will be

issued to him/her.

If within the established time, an individual fails to file his application regarding the

refusal to receive a universal E-card and (or) forward information on the choice of the bank,

he/she will receive a universal E-card with electronic bank application selected by the subject of

the Russian Federation out of the banks that concluded a contract with the Federal authorized

organization upon the results of the tender held by the subject of the Russian Federation.

The requirements set to banks and the requirements to the contract concluded by the

OJSC UEC with the banks participating in the provision of services within the framework of

electronic bank application and the procedure for the conclusion thereof shall be established by

the Federal executive power body exercising the functions of normative and legal regulation in

the sphere of analysis and forecasting social and economic development together with the federal

executive power body developing public policy in the sphere of banking activity and the Central

39

Bank of the Russian Federation. OJSC UEC has no right to refuse to conclude a contract to the

banks which conform to the above requirements.

The analysis of the provisions of Law#210 FZ from the standpoint of use of the universal

electronic card for the receipt of banking services allows to draw the following conclusions. By

the time when the issuance to universal E-cards to the individuals will be completed, those

individuals who received the cards will have open bank accounts in at least one bank.

Presumably actually all the citizens of the Russian Federation will receive a universal electronic

card. This will increase the penetration of banking services to all spheres of life in the territory of

Russia, which will create additional opportunities for providing services via bank agents. Key

banking services will be provided to universal E-cards holders by banks who concluded

respective agreements with OJSC UEC and who will ensure the functioning of the bank

application of the E-card.