UK accountants in rush to draft Moscow laws: Touche Ross and KPMG race parliament deadline on securities

BRITISH accountancy firms, including Touche Ross and KPMG, are working overtime to help to provide the Russian authorities with draft legislation on the regulation of their securities markets before a parliamentary deadline of 23 September.

Some projects are being part- funded by the British government's Know How Fund, the body set up to provide professional expertise to former eastern bloc countries.

The Prime Minister, Victor Chernomyrdin, has promised his country that a law controlling the securities markets, which will include the regulation of Russia's investment fund industry, will be presented to parliament promptly.

The initiative has gained political urgency after the Russian government was forced to close down MMM, a joint stock company that had advertised a massive pyramid- selling scheme on television and then issued paper far in excess of its authorised share capital.

Kate Mortimer, an adviser with the KHF, said the MMM investment vehicle that collapsed last week did not fall under the aegis of the State Property Agency. It is regulated directly from the Ministry of Finance.

The draft legislation is being co- ordinated by the Russian Securities and Exchange Commission. But efforts are being hampered by rivalry between the Finance Ministry, the central bank and the SEC, which are all putting forward versions of the draft legislation.

'Investor protection is a very sensitive area,' said Jerry Abel, a Touche Ross partner currently in Moscow. Touche was yesterday officially appointed to advise the State Property Company, one of the regulatory bodies, on the regulation of pooled investment funds.

Almost 15 million Russians have pooled their privatisation vouchers in a variety of investment funds. There are now concerns that some funds are making unsustainably high dividend payments out of investors' capital.

'The primary issue for the fund industry as a whole is that net asset value has very little meaning,' Mr Abel said. 'There is a difficulty in obtaining reliable share-price information and difficulty in valuing illiquid and unquoted stocks. At the root of it, there is a lack of incentive to disclose information because of the current tax situation, although an honest fund manager would be able to act with integrity.'

There is also a problem in that basic accounting information does not follow rules of best practice. Some accounting is based on nominal value rather than cost. Touche will advise on the use of accounting techniques appropriate to collective investments.

Touche will advise on the administration of funds that invest in privatised Russian companies. Underlying investments include Zil, the limousine manufacturer, and the resources concern Lukoil.

In 1992, Russians were offered the privatisation vouchers to use to buy shares in privatised companies.

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