Key areas of formation of the legal framework of the common financial market of the EAEU, taking into account the European experience

Medzhitov Tamerlan Vaitovich Postgraduate student, Department of Administrative and Financial Law, RUDN University 6 Miklukho-Maklaya str., Moscow, 117198, Russia sashals1@yandex.ru

The introductory part

         As in the framework of any other modern integration project, a single (common) internal market is being formed within the Eurasian Economic Union (hereinafter referred to as the EAEU), the key characteristic of which is the principle of "four freedoms". This means that the free movement of goods, services, capital and labor is realized in the domestic market. The free movement of financial services and the movement of capital are closely intertwined: their implementation is impossible without building a common financial market based on the national financial markets of the EAEU member states (which are currently at different stages of their development, as well as the volume and quality of legal regulation of relations in these markets differ).

         The relevance of addressing this topic is undoubtedly due to the needs of the Russian Federation in the further development of Eurasian integration, including in the financial sphere, which can strengthen Russia's position on the world stage in difficult geopolitical conditions. Nevertheless, the problems of financial integration of the EAEU member states have not yet been studied in detail in the domestic literature. We note the works of R.A. Kasyanov, which conducted a detailed comparative legal analysis of financial and legal regulation in the EU and the EAEU, as well as articles by individual Russian researchers (L.A. Anosova, T.K. Blokhina, L.M. Borsch, E.A. Zvonova, V.S. Izotov, Yu.A. Krokhina, E.V. Kulakova, V.Yu. Mishina, V.Ya. Pishik, A.S. Teplov, T.V. Fursova, etc.). However, many of them do not take into account the latest innovations in the legal regulation of the financial integration of the EAEU, the comparative legal aspect is insufficiently expressed. 

The methodological basis of the article is represented by a set of general scientific and special research methods. Among them are analysis, synthesis, analogy, comparative legal (comparative) and formal legal methods, as well as a systematic approach. 

         From a theoretical point of view, as V.S. Izotov, T.A. Meshkova and A.S. Teplov point out, the common financial market in integration associations appears at the final stage of integration, anticipating the formation of an economic and monetary union. They point out that the common financial market is the result of convergence (convergence, unification) of three key segments of national financial markets: the banking market, the insurance market and the securities market ^{[4, p.129]}. Thus, if such a market is created within the framework of the EAEU, it will be possible to assert a sufficiently high level of integration maturity.

The EU's experience in building a financial market

In order to understand the mechanics of building a common financial market in the EAEU, it would be wise to refer to the experience of the EU, where similar processes have been taking place for decades to achieve similar tasks. Unlike the EAEU, where several provisions of the EAEU Treaty are devoted to financial market issues at once, initially the founding treaties of the EU did not contain special instructions on building a common financial market with unified approaches to its regulation. At the same time, as R.A. Kasyanov points out, already at the early stages of European integration, the legislation of the EU member states in the field of securities market regulation was harmonized, the legal basis of which was the norms of the EU primary law on the internal market as such ^{[5, p. 83]}. As a result, approximately forty directives made up a cquis communautaire in this area. However, the adoption of these acts was not systemic in nature and did not have a programmatic and targeted basis.

The situation changed in the late 1990s, when, as integration deepened (the creation of the Economic and Monetary Union in 1993) and its upcoming expansion (in 2004 at the expense of the countries of Central and Eastern Europe), the Union faced an urgent need to pursue a targeted policy in the field of the securities market. At that moment, the European Commission adopted a systematic, programmatic approach – in 1999, a five-year Financial Services Action Plan (IFAS) was adopted, which outlined the directions of future reforms in the field of regulatory and organizational framework for financial market regulation at the EU level ^[12].

This plan provided for several goals: creation of a single wholesale financial services market; improvement of openness and integration in the retail financial services market; ensuring more effective prudential regulation and supervision; elimination of tax barriers to financial market integration; creation of more effective and transparent corporate governance.

From a substantive point of view, the Plan provided for more than forty activities, of which about thirty directives were proposed for adoption. A schedule and priority have been set for each of these activities. By 2007, almost all of them had been fully implemented ^[13].

The implementation of the IFRS was designed for five years, and already in 2005 a new document was adopted – the EU White Paper on Financial Services Policy, also designed for a five-year period. The main purpose of the White Paper was to build on previous successes, review and expand existing regulation in order to further move towards the EU single financial market.

In 2001, the so-called "Lamfalussi process" was launched - a special model of regulatory decision-making in the field of financial market, within which four key links and the basis of interaction between them were identified. The process was named after the first president of the European Monetary Institute, A. Lamfaloussi, who in his report ^[14] proposed a uniform approach to financial market regulation through the distribution of powers between different structures.

At the first level, these are EU institutions such as the European Parliament and the Council of the EU, which adopt legislative acts that establish the broadest regulation. At the second level, the relevant regulation is detailed at the level of acts of the European Commission, which are developed in various advisory committees and commissions. Examples here are the European Securities Committee (ECB) and the Committee of European Securities Regulators (ECB), established in 2001. The ECB has become a kind of "think tank" for providing advice and analytical conclusions to the European Commission. At the third level of the "Lamfaloussi process", national regulators worked to coordinate the new rules with other countries. The aim here was cooperation and exchange between national regulators to develop common standards. Finally, the fourth level included the observance and application of the adopted acts ^{[16, p. 45]}.

Thanks to the "Lamfaloussi process", the regulation of the securities market in the EU has become much more efficient and effective. Only the global financial crisis of 2008-2009 required adjustments to the established model (which by 2008 had already been expanded to other key sectors of the financial market – the banking sector and the insurance market) ^{[1, p. 75]}. 

Since 2009, a new, modern stage of legal regulation of the securities market in the EU has begun. It is related to the report of another prominent financier, Jacques de Larosiere ^[15]. This report emphasized that the single financial market in the EU has already been created, but it needs adjustments. Inconsistency in the national regulation of financial markets in the Member States was cited as one of the main problems. As a result, it was proposed to strengthen the supranational principle. This was most clearly manifested in the fact that financial market regulation began to occur more often not through directives, but at the level of acts of direct action – regulations ^{[2, p. 57]}.

The concept of a common financial market in the EAEU and its organizational foundations

The process of financial integration takes place in the EAEU much more quickly, which is largely predetermined by the already existing positive experience of the EU, as well as by a competent decision to outline in advance the legal framework of the common financial market back in 2014, at the time of the development of the EAEU Treaty. This contributes to the consistency of decisions, coherence of actions, and the possibility of strategic goal-setting.

Thus, the founding act of the EAEU – the EAEU Treaty of 2015 – orients the member states in the medium term to build a common financial market in the Eurasian space (target - 2025), which will be regulated on the basis of harmonized norms of the legislations of the member states, and relations in this market will be controlled by a single supranational body ^[3]. After 2025, the second stage will begin, when the regulation of financial relations will be carried out on the basis of supranational principles.

The Protocol on Financial Services (which is Annex No. 17 to the EAEU Treaty) defines the term "common financial market": it is proposed to understand the financial market of the member states of the Union, which meets a number of criteria:

· Harmonized requirements for regulation and supervision of financial markets in the Member States;

· mutual recognition of licenses in three key sectors of the financial market (banks, insurance companies, securities market entities);

· provision of financial services throughout the EAEU territory without additional institution as a legal entity;

· Administrative cooperation between the authorized bodies of the Member States of the Union.

         R.A. Kasyanov, speaking about the doctrinal understanding of the general financial market, gives a definition based on the substantive aspect, i.e. those services that are provided in this market. In his opinion, these are three types of financial services: insurance services, banking services, as well as services in the securities market ^{[5, p. 56]}. In our opinion, this definition can be supplemented by an indication of the source of regulation of the relevant relations in the integration association – these are harmonized or unified norms (in the latter case, we are talking about the direct effect of acts of supranational law in the financial sector). Also, an essential feature of a common financial market is a single regulatory and supervisory mechanism that performs the functions of monitoring the functioning of such a market.

         In the Treaty on the EAEU, in Article 103, this mechanism is called a "supranational body for regulating the financial market", which is proposed to be established by 2025 in Almaty (Kazakhstan). Yu.A. Krokhina believes that we are talking here about the formation of a new institution - a supranational bank (Eurasian Central Bank), which should have independence – organizational, financial, functional ^{[8, p. 67]}. If this forecast is justified, it will be possible to talk about the gradual formation of prerequisites for the organization of a monetary union within the framework of the EAEU.

However, it is quite possible that this norm refers to the organization of a supervisory authority, following the example of how it is implemented within the framework of the European Union. It should be noted that the modern organizational basis of the common financial services market in the EU has been formed for many years; it has acquired its modern outlines since January 1, 2011, when three key structures were created within the framework of the "Larosiere process" – the European Supervisory Authorities (ESA's). In the banking sector, it is the European Banking Authority (EBA); in the field of pensions and insurance, it is the European Insurance and Pension Supervision Authority (EIOPA); in the field of securities market, it is the European Securities and Markets Authority (ESMA).

In addition, the European Systemic Risk Council (ESRB) can also be attributed to the European financial supervision system. This body is responsible for macroprudential supervision in the financial system, for a detailed analysis of risks, prevention of their occurrence and emergency response to them ^{[11, p. 103]}.

It is no coincidence that all these organizations are integrated into the system: They carry out their activities in a coordinated manner, in constant coordination with each other and with key EU institutions. That is why the reform provided for the Joint Committee of European Supervisory Authorities, which includes all four of these bodies. The purpose of the Joint Committee is to exchange information on oversight methods, coordinate approaches and means to improve these methods ^{[11, p. 104]}. The Committee works in the field of microprudential analysis of "intersectoral" events, risks and vulnerabilities to financial stability; in the field of supervision of financial conglomerates; in the field of accounting and auditing, as well as anti-money laundering measures. In fact, it is within this committee that the systemic regulation of the financial market in the EU is most clearly visible.

         It seems that a similar model should eventually be implemented within the framework of the EAEU, and it is unlikely that this process will be equally rapid for three sectors of the financial market: for objective reasons, harmonization can be achieved most quickly in the field of banking services, since this market is the most developed in all member states of the Union. At the same time, the EU's experience in creating three different departments does not seem relevant for the EAEU: the formation of one body will be enough here, but some of the functions in the field of financial regulation should be transferred to the Eurasian Central Bank (if it is created).

Conceptual and regulatory foundations of the EAEU financial market

         In addition to the organizational foundations, it is equally important to develop normative legal acts on the basis of which the harmonization of national legislation will be carried out. A similar goal is set in the Concept of the formation of the common financial Market of the EAEU adopted in 2019 ^[7]. In particular, it points out the importance of bringing the national regulation of financial markets in the member States to comparable rules, where differences will not interfere with the achievement of a common goal, and the risks of regulatory arbitration will be leveled.

         The Concept also pays great attention to ensuring mutual access of financial market participants to the territory of other EAEU member states. This is one of the basic provisions directly related to the implementation of the principle of free movement of services. Such admission can be implemented in three main forms: the opening of a subsidiary (based on the mechanism of standardized licenses that can be granted to an insurance or banking organization while meeting the minimum requirements for the amount of regulatory capital, as well as the capital adequacy ratio), the opening of a foreign branch (regulated in accordance with WTO law), as well as cross-border provision services (for this purpose, the Member States agree on standards in the field of consumer protection of financial services, rules on the settlement of cross-border disputes, rules on the transfer of personal data across the territory of the Union).

         An important area of development of the EAEU financial market is the interaction of national regulators overseeing the activities of parent and subsidiary companies, as well as foreign branches. Such interaction should be ensured, inter alia, on the basis of administrative cooperation mechanisms, which is the subject of a separate section of the 2019 Concept.

         The concept also orients the EAEU member states to adopt a roadmap for the creation of a common exchange space, as it was implemented in the early 21st century in the EU. Dealers and brokers of each of the EAEU Member States should have unhindered access to organized trading in any EAEU member State.

         It is noteworthy that the Concept also pays attention to such important issues at the present stage as personal data protection, consumer protection and cybersecurity in the cross-border provision of financial services. After 2025, appropriate standards should be developed, the basis for which, in our opinion, should be the most stringent requirements existing in the EAEU member states, as well as the best international practices (references to which can be repeatedly found in the 2019 Concept).

Problems and risks of building a common financial market of the EAEU

         Having considered the content of the main activities for the formation of the common financial market of the EAEU, it is important to pay attention to some of the risks and problems faced by the process of forming such a market. Firstly, it is the different level of development of national financial markets in the EAEU member states (Russia occupies a leading position here, and in all three segments - the banking and insurance market, as well as the securities market). This also implies the risks of "multi-speed integration", when it is quite difficult to develop standards that are uniform for all five member states, since they differ both in the structure of national economies and in the parameters of financial markets. For example, some experts express fair concerns that without preliminary work, the integration of the securities markets of the EAEU member states will in practice lead to the absorption by the Russian market of less developed markets of other EAEU member states, which does not meet the integration goals in any way ^{[6, p. 14]}.

         Russian researcher I.M. Kuchmezov rightly points out such a problem as the different monetary policies of the central banks of the EAEU member states (first of all, the high difference in key rates), which is explained by discrepancies in the pace of economic recovery and local shocks that may affect some states and not others ^{[10, p. 93]}. Suffice it to recall the sanctions imposed by the "collective West" after the start of Russia's special military operation in Ukraine on February 24, 2022, which came as a shock, first of all, to two of the five EAEU countries – Russia and Belarus.

         Another problem is the lack of a single currency or a common unit of account, which increases currency risks (including due to the high volatility of national currencies) and does not allow us to fully rely on the EU's experience in financial integration, where economies were more open, more involved in international investment relations ^[9].

         Finally, it is important to address the problem of rather slow progress towards the stated goals. Unfortunately, not all measures have been completed before the planned deadline – the construction of a common financial market by 2025 – and it seems that the required amount of work will no longer be done within this period. Interaction between responsible national and supranational bodies should be intensified so that the process of forming the internal market of the EAEU is not delayed.

Conclusion

         Thus, the common financial market of the EAEU, if it is successfully formed in accordance with the set goals, will bring Eurasian integration to a new level, bringing the formation of an economic and monetary union closer. Today, in particular, based on the experience of the EU, the necessary conceptual and regulatory frameworks for the approximation of the legislation of the EAEU member states in the field of banking and insurance regulation, as well as regulation of the securities market have been developed. By 2025, the organizational framework in the form of a supranational body with regulatory and supervisory functions should be launched in due course. The common financial market of the EAEU, therefore, can be defined as a common market for banking and insurance services, as well as services in the securities sector, for the member states of the integration association, relations in which are regulated by harmonized or unified norms under the control of a supranational regulatory and supervisory authority. In its construction in the EAEU space, the following risks and potential problems were identified: risks of "multi-speed integration" due to the difference between the level of development of the banking and insurance markets, as well as the securities market in different EAEU member states; increased currency risks due to the lack of a single unit of account; lack of coherence in the monetary policy of national central banks; slow pace implementation of agreed measures.