An organization is considered a self-regulated one if it meets the attributes of a noncommercial organization as set forth in the RF Civil Code and has the above mentioned number of members, if standards and rules of entrepreneurial or professional activity of a certain type are available (if the applicable federal laws do not provide otherwise) and if each SRO member will have additional property liability before consumers of produced goods (performed works and/or rendered services) and other persons 1.
The SRO membership is voluntary according to the general rule. However, the federal laws can provide also for mandatory membership in SRO.
A SRO develops SRO standards and rules that are requirements to be obligatory complied with by all SRO members; these requirements relate to entrepreneurship or professional activities. The SRO standards and rules can contain requirements that are additional to those established by the law.
Disciplinary sanctions are provided for breaches of the SRO standards and rules.
The SRO standards and rules shall:
- comply with the business ethics rules;
- remove or mitigate a conflict of interests of the self-regulated organization members, their employees and members of a collegial governance body of the SRO.
The SRO standards and rules shall prohibit SRO members to perform any actions that could damage other subjects of entrepreneurship or professional activity; they also shall protect from:
- unfair competition;
- actions causing moral or other damage to the consumers of goods (works, services) and other persons;
- actions damaging the SRO business image or that of a SRO member.
The SRO shall ensure release of the information about activities of the SRO members that may affect the rights and lawful interests of any person.
The functions of a SRO are similar to those of a non-commercial entity: to develop and establish the membership; to take disciplinary sanctions against their members, etc. The SRO has very large authorities in the area of control over activities of their members.
The SRO reviews the activities of their members using reports and other documents approved by the general meeting and provided to the SRO. Besides, the SRO:
1) complaints against actions of the SRO members and incidents of breaching the SRO standards and rules and the membership terms by SRO members;
See, Article 13 of Federal Law “On self-regulated organizations” for details.
Section Institutional Issues 2) conducts scheduled and off-scheduled audits of activities of the SRO members. (The controls entrepreneurship and professional activities of their members relating to compliance of the SRO standards and rules and the SRO membership terms;
3) reviews scheduled audit is held at least once every three years while an off-schedule audit is held in response to a claim of standards and rules breaching, and in some other cases).
Two key mechanisms of responsibility of the SRO members are established by the law:
Disciplinary sanctions can be taken against a SRO member based on the review results of complaints on the actions of the SRO member related to non-compliance with the SRO standards and rules and the SRO membership terms.
The following disciplinary actions can be taken against a SRO member:
1) an order to remove identified breaches by the set deadline;
2) a note of warning;
3) a fine;
4) a recommendation to exclude the member from the SRO; this recommendation is reviewed by the SRO standing collegial governance body.
Any decision on expulsion from the SRO members likewise any abuse of the rights and lawful interests of the SRO members by actions/no actions of the SRO and its employees and/or governance bodies can be contested in court. The SRO member concerned is entitled to demand from the SRO compensation for caused harm.
Property liability of the SRO members to the consumers of goods, works and services manufactured/performed/rendered by the SRO members and other persons can be insured by using the compensation fund and the system of individual and/or collective insurance.
The compensation fund is initially formed by SRO members fees in the amount at least Rb 3,000 from each member. The minimal insured sum under a contract of liability insurance of each SRO member shall be at least Rb 30,000 per year.
Federal Law “On self-regulated organizations” regulates thoroughly the issues of placing cash funds of the compensation fund (Article 13). The Law also provides for broad opportunities in certain sectors/markets and type of business for SRO to define independently, by using the Federal Law and in some cases – the SRO internal documents – other terms including the procedure of building up the compensation fund, placement of its money, the minimal size and the procedure of insuring liability of the SRO members.
According to general rule, the SRO shall be liable for obligations of any SRO member (up to the compensation fund amount) that have arisen as a result of causing damage by defects of goods (works, services) manufactured by the SRO member. The SRO obligations may not be recovered from the assets of the compensation fund.
The Federal Law “On self-regulated organizations” sets a rather high level of requirements to information transparency about the SRO activities (Article 7, FZ “ On SRO”).
The enhanced control functions of the SRO require a specific procedure of interaction of the SRO with the authorized bodies of executive power. Thus, the SRO shall:
1) forward to the authorized body the SRO standards and rules, the membership terms and changes inserted in these documents;
2) data on the scheduled and conducted audits by the SRO of the activities of the SRO members and the audit findings.
The authorized body shall:
RUSSIAN ECONOMY IN trends and outlooks 1) send to the SRO information about the findings of the conducted audits or entrepreneurial and professional activities of the SRO members;
2) appeal to court to delete the data on the non-commercial organization from the SRO State Registry; if the claim is met, the self-regulated organization loses its status (item 6 Article 3, FZ “On SRO”).
The SRO governance bodies are:
1) general Meeting of the SRO members – a supreme body convened at least once a year; the body deals with such issues as approval of the Charter, making changes therein, election of a standing collegial governance body, approval of the procedure for applying disciplinary sanctions, etc1;
2) standing collegial governance body – is made of the SRO members and independent members who do not have employment relations with the SRO and its members. Independent members shall make at least 1/3 in the standing collegial body of the SRO. If the Federal Law does not stipulate otherwise, the SRO standing collegial governance body’s Terms of Reference include approval of SRO standards and rules, decisions on joining and withdrawal from the SRO membership, setting specialized bodies of the SRO, etc.The functions of this body can be exercised by the General Meeting of the SRO members;
3) SRO executive body resolves issues of SRO economic and other activities that do not fall within the scope of competencies of the two bodies mentioned above.
Federal Service for State Registration, Cadaster and Mapping (RosReestr) maintains the SRO Federal Registry if no federal body is set up with control and supervision functions in a certain business area. The Registry data are deemed open and public. When a non-commercial entity is entered in the SRO Registry, this entity shall acquire the SRO status; when an entity is excluded from the SRO Registry, its status is lost. The State Registry Maintenance Procedure is set by Ministry of Economic Development of the Russian Federation3.
Distribution of supervision and control functions over self-regulated organizations between different state authorities (Table 21).
Table Distribution of supervision and control functions over self-regulated organizations between different state authorities State control/supervisory authority Sector or type of activity of a SRO 1 RF Ministry of Finance - SRO of auditors;
- SRO of credit cooperatives;
- SRO ina micro-finance sector Federal Service for Financial Markets (FSFM of - SRO on the securities market;
Russia) - SRO in the area of investment funds managing companies;
- SRO in the area of housing funded cooperatives;
Federal Service for State Registration, Cadaster and - SRO of appraisers (in part);
Mapping (RosReestr) - SRO of bankruptcy commissioners (in part) Federal Service for Insurance Supervision (Ross- - SRO of insurers trakhnadzor) RF Ministry of Agriculture SRO of auditing councils of agricultural cooperatives RF Ministry of Energy Activity in support of functions of the commercial infrastructure of the electric energy wholesale market (Market Council) See item 3, Article 16 of FZ “On self-regulated organizations” for details.
See item7, Article 17 of FZ “On self-regulated organizations” for details.
Article 126.96.36.199 of Regulation of the RF Government of 05.06.08 No. 437 (version of 24.03.11with amendments of 06.04.2011) “On Ministry of Economic Development of the Russian Federation”.
Section Institutional Issues cont’d 1 RF Ministry for Economic Development - SRO of appraisers (in part);
- SRO of bankruptcy commissioners (in part) RF Ministry of Communications (Mincomsvyaz of - SRO in communications Russia) RF Ministry of Regional Development - SRO in the construction sector (in part) Federal Service for Ecological, Technological and - SRO in the construction sector (in part) Nuclear Supervision Where there is no control/supervisory body it means the Law does not specify it.
Coming back to general provisions on the SRO, note that the rights of the SRO, its officials and employees are limited by a number of terms. Thus, the SRO shall not:
1) execute entrepreneurial activity;
2) incorporate economic partnerships and companies engaged in entrepreneurship which is the subject of self-regulation for the particular SRO and become a member of such partnerships and companies:
3) exercise a number of actions and deals (if the federal laws do not specify otherwise) such as:
- pledge the SRO property or make the property a surety against obligations of other persons;
- grant surety for persons that are not SRO employees;
- act as a mediator in selling goods (works, services) manufactured by the SRO members;
There is also a number of restrictions for the sole executive body of the SRO1.
6.5.2. Development of the SRO general laws in 2008–During 2007–2011, the right to establish self-regulated organizations was fixed in the above mentioned Federal Law and in other 8 Federal Laws. In 5 cases out of 8, the establishment of a SRO in this or that form is mandatory and the segments to which such norms apply are critical segments of the economy in terms of their social importance like construction, electric energy wholesale market, design and engineering, etc.
For the reviewed 4-year period considerable changes in the Federal Law ‘On selfregulation” occurred only once – in July 2008 No. 148-FZ of 22.07.08 (hereinafter – Federal Law “On SRO” - new version). Exceptions are the right of using compensation fund assets not only to secure the property liability of the SRP members and the right of return of contributions of the SRO members as per the applicable federal laws; these rights were enforced in July 2010 (No. 240-FZ of 27.07.10). Such innovations have been typical for legal regulation starting from the mid of the 2000’es. They have been actively used, e.g. in the bankruptcy law2. On one hand, such clauses ensure flexibility of the application of laws while on the other hand – they establish unjustified “specific” conditions for separate market players thus disrupting competition. Thus, a SRO engaged in construction and design, and engineering See items 4 and 5 of Article 14 of FZ No. 315-FZ dated 01.12.2007 “On self-regulated organizations” for details.
E. A. Apevalova, A. D. Radygin. Bankruptcies in the 2000’s: from a raider instrument to the “double standard” policy– “Economic Policy” August, 2009.
RUSSIAN ECONOMY IN trends and outlooks surveys is allowed, e.g. to invest the assets of the SRO compensation fund in order to increase its size. Such SRO has also the right of return of the SRO members’ contributions 1.
The new version of the Federal Law ‘On SRO” was not an exception as it also contains “specific” new clauses regulating particular cases:
1) possible establishment of a SRO not only for self-regulation but for other purposes that will be specified in “other federal laws”;
2) possibility not to establish control bodies that supervise the compliance of the standards and rules by the SRO members, if this possibility is established“ by a federal law”;
3) non-obligatory key requirements to the SRO activity (sub-items 1-3, Federal Law “On SRO”, new version) in the instances “established by federal laws”:
- availability of standards and rules of entrepreneurship/professional activity mandatory for compliance by the members;
- securing additional property liability of the SRO members to consumers of works and services by insurance and establishing compensation funds;
4) no obligation to disclose information to the majority of consumers of the manufactured goods and services and to shareholders, investors, creditors in the instances “established by a federal law” (p. 4, Article 7, Federal Law “On SRO”, new version).
5) possibility to use the compensation fund assets to keep, increase and invest the assets not by managing companies, if this is “specified by a federal law” (P. 5, Article 13, Federal Law “On SRO”, new version). The reduced control over placing and investment of funds is usually used to derive unlawful profits, to misuse funds, to abuse authorities, etc. Eventually all these reduce the performance efficiency.
While in some instances we talk about the necessity to have a flexible regulation with account for sector and regional specifics, in the above mentioned cases a specific institutional environment will be created for a narrow group of people, thus the legal environment will be diluted and the effect of the legal regulation will be reduced.
As for systematic innovations, we’d like to focus on the following: