What will the testing system for investors in Russia change?
“One of the current problems in the banking and financial industry is that many novice investors don’t know how to enter the market. Simple interfaces combined with popularized trading sites can take care of this, The craving for easy money, and a lack of understanding on trading and risks associated with it, has meant that many people with little money come to the market, – This is according to Alexei Skobelev, CEO at Markswebb, – There are those who make decisions when experiencing the influence of hype, false expectations, or not knowing what will happen next.”
New rules regarding unqualified investors were introduced in Russia from October 1. The bill to introduce these changes was developed by the Bank of Russia, and the Central Bank has justified it as a way to protects inexperienced investors from scams. It is largely thanks to increasing number of investors so far this year – almost 15 million in Russia as of mid-September, the Central Bank revealed. Why has this happened? The Bank of Russia is working on a draft bill that would disallow the use of high-risk products for those who don’t qualify and have not passed special classes.
Without product testing, private investors will be able to buy whatever product comes into the general public, without any testing done: for example, Russian government securities (OFZ), shares of Russian companies, mortgage bonds and bonds with a certain level of credit rating, shares of mutual funds, as well as foreign shares from the nasdaq 100, S&P 500 and Dow indices.
You don’t need to pass the test if the investor has at least one trade on the selected instrument before October 1, 2021. Testing is not necessary for citizens who already have qualified investor status. For example, without a test, “nequal” has the right to buy only simple and least risky products from quotation lists or Russian Government Bonds.
From September 20th users of the Tinkoff investments app will be able to take a test. The test should help them both identify any gaps in their knowledge and further progress in the app. If a private investor has already traded such instruments, then testing on them will not be necessary.
How will testing take place?
All tests consist of two blocks. The first is for self-assessment and the other for knowledge. For example, a margin trading test may have as its first section self-assessments on specific aspects, followed by an explanation of concepts and terminology.
In such a test, the investors will have to answer questions about how they found out about the information. What percentage of those transactions did they personally take part in?
Caution – the question will differ according to the instrument. For example, if you’re talking about shares of a foreign ETF, knowledge of how an exchange-traded fund’s price formation mechanism works is important. In order to pass this test, you will need to be knowledgeable about the essential points of the desired financial instrument, as well as its risks and benefits.
As a result, an investor will have to answer seven questions. Three of them are for self-esteem, four more are for knowledge. For each question, there will be four possible answers. In case of a wrong answer, you can retake the test infinitely. The answers will change but they’ll never be any easier.
Which are the pros and cons of the new system?
Testing is one of the best ways to learn how investors behave, because it forces them to think critically. The fear of failing can be common for inexperienced traders, but in the long run, it’s important to keep investing. While you may experience some losses from time to time, most experienced traders have them as well. If you don’t know about what you’re trading or fail a test, for example when your preferred trading bot doesn’t work out as expected and you lose money.
Although this is true, it’s important to note that the advantages of using AI for testing outweigh the disadvantages. The questions will naturally be reworded periodically so that companies can maintain a fresh edge over their competitors. The president of the NAUFOR, Alexei Timofeev, told RBC Investments that they will make sure testing is carried out accurately. He also mentioned that they will then evaluate the effectiveness of current testing information in a little over a year.
How do investors know they need to take the test? Investment companies will send messages to all of their clients giving them information about the beginning of the testing procedure.
All brokers provide at least two ways for clients to test their knowledge:
the client has already decided what he will use from the high-risk tools with access restrictions, and wants to take the exam in advance;
in both cases the investor applies for a knowledge test and passes it. Results will be known on the same day.
I wanted to say as well though, I’m not sure if into this uncertainty, at this moment in time, we’re in the post-truth knowledge society.
One year from now, the regulator will re-evaluate the system with unqualified investors before it is implemented on a large scale. Until then, you are free to fill out our questionnaire. President of NAUFOR Alexei Timofeev said at a press conference, in July, that the knowledge test may be canceled. They’ll just have to provide the court with the brokers knowledge of exchange products which has a similar mechanism abroad. According to this law, investment profiles are now being carried up in Russia (a law to identify the maximum acceptable risk for an investor). And so that there is no universal approach, the regulator and trade unions will follow.
Banki.ru interviewed a number of brokers and found that they think the new system of testing “nonquals” will only make things harder for everyone, so citizens may feel like finance is complicated and expensive. Representatives of VTB Capital Investments, Veles Capital and Expobank hope that they’ll be able to work more efficiently as investors will be well-versed in trading instruments and aware of the risks.
So what will change?
The law was passed to prevent newcomers from making mistakes. It’ll be harder for novice investors to use some of the additional resources that they previously had access too. To use Mattermost Chat, we would ask that you start by answering a few questions.
How will market testing change the Russian market?
The first phase of testing will include 3-5% of actively trading clients. Over the long-term, Lesnov expects that number to grow significantly.
Alexey Timofeev, President of NAUFOR, said: “I don’t think that testing will become an obstacle to access to complex financial instruments — the level of questions, the possibility of retaking, preparation by the broker, which is not bad, will strengthen a person before he takes this test in order for him to pass it— the current mechanism excludes the thoughtless acquisition of a complex financial instrument by an unqualified investor. It doesn’t hurt to buy it for an investor who understands the nuances of such a financial instrument though.”
And Natalya Smirnova says that this testing won’t somehow increase interest in complex tools – those who want to invest in them will learn about the tests after the fact.
“By introducing testing, we can’t do anything to protect investors from every possible risky investment. But also impossible for us to protect them from every type of risky investment – that’s something a person will still have to decide. You can limit his risk by giving him experience and educating him.” The financial consultant concluded at the end of this quote.