Center for Protection of Depositors and Investors (CPDI) was established two years ago, on August 26, 2015. It is a non-profit organization aimed at providing professional legal and analytical assistance to private citizens and legal entities who lost money in bankrupt banks, and in the future it plans to provide assistance to clients who suffered losses at the hands of other, non-bank companies. Invest-Foresight met with the president of CPDI, Doctor of Sciences in economics, professor Artem Genkin to talk about the progress made in two years, the difficulties that the bank clients face today, and why the deposit insurance system doesn’t work for everyone and every time.
Two years of work
– Dr. Genkin, could you start by sharing the progress achieved by CPDI during these years? How well were you able to implement your original ideas, what is your record on this anniversary?
– Over the last year, we’ve achieved some significant progress in providing legal assistance to depositors. If the first year of our work was the year of “professional education”, as we accumulated the instruments for standard “treatment” of the most widespread cases connected to the problematic banks, this year became the year of logistics. We set ourselves a challenge and accomplished it successfully: we learned to organize our operations rationally so as to provide effective assistance to the maximum number of potentially interested people.
– Which of the CPDI services are currently available to depositors and investors? How much do they cost?
– We offer standard legal services, such as legal advice and case litigation, to the private citizens. The price of our legal services is on par with the market, but we offer significant discounts to welfare beneficiaries as long as they provide us with relevant documentary evidence. In addition to this, we offer such product as “Bank diagnostics”, which is an automated system of comprehensive evaluation of the banks’ financial status and operating results on the basis of their bookkeeping.
Getting the compensation is not an easy task!
– How in-demand were the services of CPDI? Did the reality live up to your expectations?
– We have mixed feelings, to tell you the truth. On the one hand, the work flow doesn’t abate, and in some areas we are reaching the break-even point, which means that in addition to performing a socially meaningful service, we finally have some confidence both in the presence of long-term financial foundation for our work and in our future. On the other hand, the myth that the “Deposit Insurance Agency will always help a depositor” has been dispelled, and that cannot but weigh us down. Until recently, the majority of citizens believed that the existing deposit insurance system safely guarantees the receipt of insurance indemnity of up to 1.4 mln rubles, and that the clients of banks, where such insured events occurred, did not require our help and participation.
Meanwhile, the events of the last two years demonstrate that the receipt of insurance indemnity by the common depositor directly depends on the integrity of the bank specialists who helped him open the deposit and attended to his bank operations. If the deposit was honestly registered by the bank and reflected in the automated banking system, the advent of insured event means that the depositor’s full claims will be added to the register of bank’s obligations to its depositors. The Deposit Insurance Agency uses this register to pay the insurance indemnity through the authorized agent banks. But if the bank used double-entry bookkeeping, the depositor will have to prove his right to receive the insurance indemnity from the Deposit Insurance Agency, because his name won’t automatically end up in any register.
– Which banks, in your experience, used this practice the most?
– The largest-scale problematic insured event was the recall of license from the JSC Arksbank. Approximately 40,000 of this bank’s depositors discovered that the insurance sums offered to them in the agent banks had nothing in common with the real size of their deposits and interest payments. In the course of several months, the Deposit Insurance Agency adjusted the payments and satisfied the claims of the majority of depositors, but about hundred people were refused their claims. This was done because the bank held fabricated information about these people’s deposits, which were registered without them, while the documents presented by the depositors themselves were not taken into account. We provided assistance to all of the private citizens who found themselves in such situation – we helped them with court litigation and we now have court rulings stating that our client’s claims have to be upheld.
Following Arksbank, similar problems were faced by the depositors of RosinterBank, Bulagar Bank, Talmenk-Bank and Kamsky Gorizont commercial bank. The case of the Kamsky Gorizont bank had the highest profile, because the Deposit Insurance Agency’s refusal to pay insurance indemnity to the depositors had to do with the fact that the Agency believed that the original deposits were registered by unauthorized persons. What does it mean? It means that the cash deposit slips were signed by people, who were not employed by the bank. As of today we already have several favorable court rulings regarding our clients’ claims, and we are confident of new successes.
To make a transition to preemptive response
– How much did the goals, that you set for CPDI when it was established, change over these years? Are there new emphases in your organization’s work?
– We want to transit away from being an “ambulance service” to providing preemptive response by incorporating forecasts and analysis in our work. This summer we received a patent for a new invention – the information analysis system for comprehensive evaluation of credit organizations. The system is based solely on the official bank bookkeeping, but it goes beyond the analysis of eight obligatory requirements set by the Central Bank. We also consider a few dozen of our own analytical factors, which the banks, even if they wanted to, cannot control to create a perfect image. What does it mean in a real-life situation? For example, the bank observes all the requirements, but we see that for the second month in a row its assets are being siphoned off. Having done a check run on the 50 banks that lost their license, we discovered that using the Central Bank requirements, only 20% of future insolvents demonstrated unhealthy situation a month prior to license recall, while using our system highlighted the problems with 68% of the bankrupt banks!
– I wonder, did your method work with Yugra Bank?
– Analysing the data that was compiled using our method, we see that the worsening of this bank’s financial condition has been documented by us since April of 2016! From there on, it’s a difficult ethical issue. We are not a ratings agency to give out evaluations: this is a reliable bank, and this one should be deserted immediately. We are not a state body like the Ministry of Emergency Situations, which is obligated to warn everyone: our forecasts say that a storm is possible… And what if there’s no storm? Or the storm doesn’t come today, but in two days? Do we have a moral right to trouble the people? I think not. But we can provide the mass-market consumers of banking services with a reliable instrument for independent analysis and intelligent investment decisions – that’s within our power.
– CPDI was established at a time when the banking industry was shaken by multiple license recalls and other scandals. Has the situation changed, and what about the number of inquiries received by your organization?
– We don’t measure our KPI by the number of received inquiries or anything of this sort. When we experimented with our specialists’ work load and ran a mass-market promo campaign of our services right after Arksbank lost its license, we received over 500 inquiries in a matter of just one week. But after separating the inquiries into similar situations and problematic issues, we discovered that often people only need precise and clear information to start solving their problem themselves. Up to 30% of inquires that we receive contain one question: where can I, as a client of such-and-such bank, find the nearest office of the agent bank that makes the insurance indemnity payments? To answer this question, we simply published an interactive map on our website. As far as I know, the Central Bank and the Deposit Insurance Agency still have nothing of this sort.
Not just the depositors
– CPDI protects the interests of both the private depositors and the legal entities whose assets “got stuck” in the problematic banks. What would you say about working with both of these categories? Who comes with more requests for help?
– The number of affected private citizens and their requests is much greater. But it’s the legal entities who are defenseless – to the utmost. In our country, the deposit insurance system doesn’t guarantee them anything, as it insures only private citizens and self-employed individuals. Statistics show that being third-priority creditors, they generally recoup just 11 to 15% of all their funds, and it takes 12 to 18 months at best. But with legal entities, they generally task their in-house legal counsel with getting the funds back, and these specialists usually don’t know all the procedural fine points. What can I say… That’s precisely the case when life-saving should be turned over to the professionals, while self-treatment is much less effective.
– The bank deposits are the principal sphere of your work?
– In addition to helping depositors in their disputes with the problematic banks and the difficult situations with the Deposit Insurance Agency, our organization provides assistance to the bank clients, whose rights as receipients of financial services are violated. Here’s a fresh example from our practice: a client had a dispute with a rather estimable bank, partly co-owned by the state. We helped the client both in the course of negotiations and during court proceedings to defend himself from the bank’s demands that he refund the interest payments on his deposit. The rights to the deposit were inherited by our client. He executed a withdrawal from the account, but the minimal required sum was left untouched. The bank tried to prove that the deposit was returned prematurely, and the interest payments should not be paid. There’s no doubt that such demands are illegal, and the court confirmed this. A number of litigation cases had to do with situations when third party funds would get stuck in the bankrupt bank. These third parties were not the bank’s clients, but their money was stuck in the accounts of the tender organizers, who were the bank’s clients. The bank’s bankruptcy activated the domino principle, setting in motion the process of mutual arrears of several legal entities. Such cases demonstrate the necessity of our participation in such disputes to protect the rights of financial service consumers.
– What about the protection of investors – does CPDI plan to work with them at all?
– We have plans to gradually start working on the financial market as a whole, expanding beyond the banking sector. We are talking primarily about providing services to the clients of insurance and investment companies, forex dealers and credit unions. We are already taking the steps to cooperate with the industry’s most respected self-regulating organizations, and I’m sure you’ll hear some news from us within the next six months.
– And what about CPDI’s relationship with the government agencies?
– No man is an island. We don’t want to set ourselves in opposition to the government agencies in any way. When such interaction is necessary to resolve the problems of our clients with deposits in problematic banks, we establish both strategic cooperation, such as with the Federal Public and Government Foundation for Protection of Depositors and Shareholders’ Rights (I was recently included in the Foundation’s Advisory Board), and contextual cooperation, such as with the law enforcement agencies and the Deposit Insurance Agency. For more than a year I’ve been a part of the Bank of Russia’s Expert Council on Protection of Rights of Financial Services Consumers and Minority Shareholders, and I take active part in its work, providing, among other things, expert evaluations of draft regulatory acts. We also do similar work under the framework of the Chamber of Commerce and Industry’s Comittee for Financial Markets and Lending Institutions. The Central Bank of Russia recognizes the importance of the work that we do. Answering my question at one of the meetings, the bank’s chairwoman Elvira Nabiullina with seeming pride mentioned the Central Bank’s new program “Complaint as a gift”. According to the Deposit Insurance Agency’s statistics, just three years ago the annual torrent of inquiries from the depositors was close to one million (and just 1.5% of those inquiries were made online!), but with the help of this new program, the Central Bank hopes to clear these “Augean stables”. I hope that our assistance will be useful to the Bank.
Interview taken by Olga Blinova