Russia's Central Bank Warns Western Banks Against Discriminating Against Russian Clients

Russia's Central Bank Warns Western Banks Against Discriminating Against Russian Clients

Moscow, Sept 13 (Reuters) – Russia's central bank has issued a stern warning to the subsidiaries of Western banks operating within the country, advising them not to bow to pressure from Western regulators and deny services to their Russian clients. This includes essential services such as international money transfers.

The warning comes amid ongoing tensions between Russian authorities and Western financial institutions. Major foreign banks still active in Russia, such as Austria's Raiffeisen Bank International (RBI) and Italy's UniCredit, face scrutiny and pressure from Western regulators, including the European Central Bank (ECB), to cease operations in Russia. Both banks are classified as systemically important by the Russian central bank, and Hungary's OTP is also among the foreign banks maintaining operations in the country.

Earlier this month, a Russian court froze RBI's shares in its local arm, effectively preventing the bank from exiting the Russian market. Following this, RBI halted international money transfers for Russian clients starting September 1.

At a recent policy briefing, Elvira Nabiullina, the governor of Russia's central bank, expressed concern over what she described as discriminatory practices by Western bank subsidiaries. "We are seeing pressure," Nabiullina said. "The subsidiaries of European and other foreign banks in Russia were established according to Russian law. Complying with the requirements of the ECB and adhering to the sanctions of foreign states contradicts Russian laws and discriminates against their clients."

To address this issue, the central bank has issued directives mandating that these subsidiaries must not refuse to process foreign currency transfers or create technical barriers for such transactions. Nabiullina accused these banks of "segregation" by selectively providing services to some Russian clients while denying others.

Additionally, the central bank has prohibited Western bank subsidiaries from sharing information about Russian clients with their head offices that could lead to discrimination. The only exception is information necessary to process payments.

The central bank plans to review the list of systemically important banks this autumn, though Nabiullina did not confirm whether Raiffeisen or UniCredit would be removed from the list. The designation of systemically important banks implies a higher level of state support in times of crisis.

Since the onset of the Ukraine conflict, Western banks operating in Russia have faced increasing pressure from both U.S. and European officials to scale back their Russian operations. The subsidiaries have capitalized on their ability to facilitate international transfers amid the exclusion of Russian banks from the global SWIFT payment system and continue to service Western corporations still present in Russia.

Nabiullina’s statements highlight the growing friction between Russian financial institutions and their Western counterparts amid the ongoing geopolitical tensions.