I-SIP Approach Helps Russia Shape Inclusive Financial Policy Making

In 2013-2014, the Central Bank of the Russian Federation (CBR) was tasked for the first time as regulator and supervisor for both credit and non-credit financial institutions, giving it a substantial amount of extra authority, requiring it to merge functions and re-engineer its operations. Because the changes were so significant, the CBR urgently needed to evaluate financial market conditions, assess its previous achievements and what further actions were required and identify ways of improving overall regulatory efficiency. It turned to CGAP and Bankable Frontier Associates (BFA) to conduct joint research on financial inclusion to explore and better understand how its policies influenced the unbanked and those marginally connected to the financial system, and was introduced to the I-SIP approach.

We at the CBR have found that the framework CGAP introduced for evaluating and managing the interrelationships among the CBR’s objectives of financial inclusion (I), stability (S), integrity (I) and consumer protection (P) – known as the I-SIP approach – has proven to be a useful tool for effective financial inclusion policy making.

Before that, the CBR had not specifically focused on the impact of certain regulatory proposals on non-credit financial organizations in terms of their contribution to financial inclusion, nor had it systematically considered their impact on the other three I-SIP objectives (stability, integrity and consumer protection). The I-SIP approach provided valuable new techniques. The I-SIP project succeeded in disclosing legislative gaps and in outlining ways to improve the oversight of financial services providers and new market participants, such as mobile network operators and e-money operators. It also provided recommendations with respect to enhancing the stability and integrity of the financial system. Armed with these tools and insights, the CBR continues to improve its regulations and procedures for adopting new rules by applying international best practice where necessary.

The CBR continues to improve its regulation and procedures for adopting new rules by applying international best practice. The instruments included in the I-SIP toolkit have proved particularly useful for the Ex Ante Regulatory Impact Assessment (EARIA). The CBR has already implemented EARIA tools in its regulatory policy and widely employs them to choose the most relevant and market-appropriate regulatory option. The CBR has issued its circular concerning EARIA, tested on the CBR’s certain statutory enactments.

Additionally, the CBR is developing a new approach to EARIA by adding simultaneous financial inclusion and financial market competition analysis. Since the regulatory impact on financial markets and financial services providers can only be fairly evaluated after implementation, in 2019-2020 the CBR will test the Ex Post Regulatory Impact Assessment (EPRIA) approach. The I-SIP approach is expected to provide useful insights into CBR’s initial implementation of EARIA and EPRIA.

We in the CBR have been looking forward to the publication of CGAP’s comprehensive new toolkit on the application of the guidance for developing financial inclusion policies and regulations. We anticipate this toolkit might also be useful for the CBR in coping with regulatory challenges presented by the advent of new financial products and technologies.

By no means do we want to stifle innovation that can lead to more financial inclusion, but we still need to ensure that as a central bank we effectively balance inclusion with the other three objectives of stability, integrity and consumer protection.