According to this Article, the termination of the work permit does not mean the expulsion from the SRO members as these are two different sanctions. This runs contrary to the above mentioned Article 55.7, which says that the absence of the work permit certificate for at least one type of work that may affect the safety of capital construction facilities leads to a decision of expulsion from the SRO members.
Many provisions of the Federal Law “On auditing activity” deal with self-regulation, but there are also special articles about the SRO of auditors (Art. 17–22).
This Federal Law sets very strict requirements to the SRO membership (Art. 18).
Auditing Activity Board is worth mentioning (Art. 16). Unlike the mentioned above SRO National Associations this Board is established as an authorized federal body. Among its members are so many representatives from the SRO of auditors that makes the Board critical for self-regulation purposes.
In terms of regulation of the SRO activity, the Federal Law “On credit cooperation” is equal to such laws as the Federal Law “On valuation activity in the RF”, the Federal Law “On insolvency (bankruptcy”, the RF City Planning Code and/or the Federal Law “On auditing activity (Art. 35–41).
The Federal Law “On energy saving and improvement of energy efficiency” describes in detail the procedure of self-regulation. However, it does not contain provisions on securing property liability of the SRO members.
The Federal Law “On heat supply” is rather new. Probably because of this, the selfregulation of this area has a lot of questions.
Thus, a non-commercial organization can become a SRO in the area of heat supply provided this organization secures additional property liability of each member before the consumers by using the following (Art. 24):
à) the compensation fund of at least RUR50,000 for each member of the non-commercial organization if the organization established a requirement to insure the civil liability by its members; inception of the insurance cover may occur in case of damage caused by defective works and services in heat supply – in the amount of at least RUR15,000 per each member of the non-commercial organization;
b) the system of individual and/or collective insurance of the liability.
The text of the Article assumes that in order to acquire a SRO status, the property liability must be secured by both ways. However, looking at item “a” we see that the compensation fund size depends on the requirement to its members to insure the civil liability.
The liability insurance requirements to the SRO members are compulsory if the compensation fund is at least RUR50,000 per one member (part 1 Art. 24).
The Federal Law does not keep any direct reference to the nature of association in SRO.
Thus, a number of issues may arise.
1. A non-commercial organization can receive a SRO status in the area of heat supply if its members are legal entities supplying heat and/or they are heat network companies, and/or individual entrepreneurs (part 1 Art. 24).
A heat supplying company is a company that sells to consumers and/or heat supplying companies generated or purchased heat energy (capacity), a heat carrier and that owns, by the RUSSIAN ECONOMY IN trends and outlooks property right or on any other lawful ground. the sources of heat energy and/or heat networks in the heat supply system by which the consumers receive heat energy.
A heat network company is a company rendering services in transferring heat energy.
These provisions apply to regulation of similar relations with involvement of individual entrepreneurs (Art. 2).
The membership in the SRO is not specified as a compulsory condition for performing these types of activity.
2. SRO in the area of heat supply must develop and approve the requirements to issuance of a work permit certificate in relation to works that affect the safety of the heat supply facilities (part 3 Art. 24). In this case, the membership in the SRO will be compulsory only for the individual entrepreneurs or the legal entities that intend performing works affecting the safety of the heat supply facilities.
Further in the Law the legislator gives the following definition of the permit certificate: “a permit certificate to execute certain types of work or types of work in the area of heat supply” (e.g. part 1 Art. 25 and others), this seems to be a more general notion. Thus the range of entities for which the membership in SRO is compulsory expands.
3. A person/entity in relation to whom the permit certificate is refused to be issued, must, jointly with the local government authorities of a settlement or a city district where this person/entity supplies heat, prepare a plan of actions for securing reliable heat supply under no permit certificate conditions. If certain types of work are performed by a person with no permit certificate, the SRO in the area of heat supply this person is a member of shall not be liable for this person action (no action) with the assets of the compensation fund (part Art. 27).
To become a member of a SRO in the area of heat supply, an individual entrepreneur or a legal entity files an application for this SRO membership by stating certain type or types of work in the area of heat supply for which they intend to receive work permit certificates (item 1 part 2 Art. 26).
The person/entity who becomes a SRO member and meets the permit certificate requirements, is issued such certificate no later than within three business days after the date when the respective decision is made, the membership fee is paid and the contribution is made to the compensation fund of this SRO (part 5 Art. 26).
Incompliance with the permit certificate requirements for certain types of works/activities in the area of hear supply can be a basis for refusal to admit an individual entrepreneur or a legal entity as a member of the SRO (part 4 Art. 26).
It means that the refusal to issue the certificate is equal to the refusal in SRO membership.
Thus, a person/entity who has been denied a permit certificate cannot become a SRO member in the heat supply business, and this contradicts the provisions of part 8, Art. 25. The Federal Law does not have the provisions that would state that an individual entrepreneur or a legal entity being a SRO member may not be refused a certificate.
4. The following disciplinary sanctions are imposed on the SRO members (part 6 Art. 27):
à) suspension of the permit certificate term of action;
b) termination of the permit certificate term of action;
c) expulsion of a faulty person/entity from the SRO membership.
In the first instance, a SRO member continues to be its member regardless of the absence of the right to carry out business in the hear supply area. Two other sanctions demonstrate that Section Institutional Issues the termination of the permit certificate term would not automatically lead to the expulsion from the SRO membership. These are two different actions.
Thus one can talk about a mandatory membership for those individual entrepreneurs or legal entities who intend to do works that may affect the safety of the heat supply facilities.
The action of the Federal Law “On SRO” does not apply to the SROs of professional participants of the securities market, joint-stock investment funds, managing companies and specialized depositaries of investment funds, shared investment funds, funded housing cooperatives, non-state pension funds, credit agencies, credit history agencies (item 3, Art. 1 of the FZ “On SRO”).
The Law establishes that the relations arising in connection with the acquisition or cessation of the status of such SRO and their activities shall be defined by federal laws regulating the respective type of activity. However, by now, the following federal laws have been enforced: regulating activities of the professional participants of the securities market (Federal Law “On the securities market”), activities of non-state pension funds (Federal Law “On nonstate pension funds”), activities of the managing companies of investment funds (Federal Law “On investment funds”), activities of the funded housing cooperatives (Federal Law “On funded housing cooperatives”). However, there are not many provisions on the self-regulation in the said laws.
Federal Law “On funded housing cooperatives” specifies that the SRO of the funded housing cooperatives is regulated by the Federal Law and therefore refers to the special Federal Law on the SRO of the funded housing cooperatives. However, such law has not been adopted yet. Joining a SRO is voluntary. Three Federal Laws state this implicitly (Federal Law “On the securities market”, Federal Law “On non-state pension funds” and Federal Law “On funded housing cooperatives”).
The SRO functions, rights and obligations in the above mentioned laws correspond to the main functions, rights and obligations provided for in the Federal law “On SRO”.
According to part 5, Art. 3, Federal Law “On SRO”, the obligatory requirement on securing by the SRO of additional property liability of each SRO member before the consumers of the manufactured goods (works and services) and other persons as per Art. 13 of Federal Law “On SRO” (the creation of a system of individual and/or collective insurance; setting up a compensation fund) shall be mandatory if the Federal Law does not provide otherwise. If the Law specifies a means of securing the property liability that differs from the compensation fund or insurance, these will not run contrary to the Federal Law “On SRO”.
Thus, the means of securing the liability specified by the laws that are not covered by the Federal Law ‘On SRO” will not contradict the norms of the Federal Law “On SRO”.
Though the Federal Law “On the Securities market” does not specify any means of securing the property liability of the SRO members, one should apply Art. 17 of the Federal Law of 05.03.1999, No. 46-FZ (the version dated 04.10.2010) ”On the protection of rights and lawful interests of investors on the securities market” that states that the SRO shall establish a compensation and other funds to reimburse for damage incurred by investors who are physical persons as a result of activities of the professional participants who are members of the SRO.
The Federal Law “On non-state pension funds” establishes that the SRO shall secure a warranty fund or a mutual insurance society to finance the liability to indemnify losses caused by the SRO members in performing their activities (part 5, Art. 36.26).
According to the Federal law “On investment funds”, before a federal law is enforced that sets forth the terms and the procedure of compensatory payments to individuals for damage RUSSIAN ECONOMY IN trends and outlooks caused as a result of non-performance or improper performance by the joint-stock investment funds, managing companies, specialized depositaries and the persons maintaining registries of the owners of investment units imposed on them by the relevant law or the agreement on obligations, the procedure of protection of property rights of individuals shall apply according to which the losses in the form of actual damage caused by the individuals who are shareholders of joint-stock investment funds, individuals who are owners of investment units shall be compensated from the assets of the federal compensation funds set up as per the RF Law “On the protection of rights and lawful interests of investors on the securities market” (art. 63)1. This fund, however, is not related to self-regulation.
The Federal Law “On funded housing cooperatives” provides for creation of a reserve fund which assets can be used to secure contingent expenses only and to cover cooperative losses. Such assets may be contributed to a unified reserve fund set up by the SRO of funded housing cooperatives if a cooperative is a member of the SRO. The aims of the formation of the reserve fund, however, do not correspond to the main aims of setting up the compensation fund.
All the laws may be divided into three groups in terms of changes in the SRO special legislation.
The 1st group includes the laws enforced before the Federal Law “On SRO”. These laws are: “On the organization of insurance activity in the RF”, Federal Laws “On agricultural cooperation”, “On the valuation activity in the RF”, “On insolvency (bankruptcy)”, “On electric energy”, “On communications”, “On advertisement” and “On the State Real Estate Cadaster”, the RF City Planning Code.
The Federal Laws “On communications”, “On advertisement” and “On the State Real Estate Cadaster” initially included the provisions on the SRO. Such provisions were also incorporated in the Law “On the organization of insurance activity in the RF” on March 7, 2005, and in the Federal Law “On agricultural cooperation” – on March 11, 2006. In both cases no substantial changes on the SRO activities were made.
The Federal Law “On electric energy” had the notion of self-regulation at the start. On 04.11.2007, however, the provision was modified, and the Trade System Administrator of the wholesale market was replaced for Market Council. A direct reference was also made that the SRO is the Market Council.
The first version of the Federal Law “On the valuation activity in the RF” dated 29.07.1998 contained the SRO provisions. Self-regulation was considered as an addition to the state regulation (Art. 22, 24).
Since 27.07.2006, the SRO membership has been a mandatory condition for performance of valuation. The following changes have been made:
1. The following requirements become mandatory for appraisers: insurance of liability (Art. 4, 24.6, 24.7), compliance with the standards, valuation rules and the rules of business and professional ethics; also the requirement to pay contributions (Art. 15).
2. Now the valuation activity is regulated not only at the government level. National Board on Valuation Activity develops federal standards for valuation. The SRO of appraisers develops and approves the standards and rules of valuation (Art. 18, 20).
Art. 19, Federal law of 05.03.1999, No 46-FZ (the version dated 04.10.2010) ”On the protection of rights and lawful interests of investors on the securities market”.
Section Institutional Issues 3. The number of Articles regulating SRO has increased from one to sixteen (Art. 22, 22.122.3, 23, 24.1-24.10). They include, among others: