KIAP and ICC Russia have conducted a study "The Attitude of Financial Institutions to Arbitration (Arbitral Proceedings)"
On July 23, 2020, the Russian National Committee of the International Chamber of Commerce - World Business Organization (ICC Russia) presented the results of the study "The Attitude of Financial Institutions to Arbitration (Arbitration Proceedings)" (in Russian language), conducted jointly with KIAP in 2019-2020. The study was aimed to understand attitude of Russian banks and financial organizations toward arbitration.
First significant study on use of arbitration by financial institutions was conducted by the ICC Commission on Arbitration and Alternative Dispute Resolution in 2016, when Task Force surveyed 50 of the world’s largest financial institutions. Study showed that financial institutions preferred to resolve disputes in state courts, although they also used arbitration institutions. The authors of the report «Financial Institutions and Commercial Arbitration» published in 2018 attributed this to a lack of awareness of the potential benefits of commercial arbitration in resolution of disputes related to banking and financial activities.
In 2019, the Russian National Committee of the International Chamber of Commerce (ICC Russia), together with KIAP, launched their own regional study to examine the experience of using arbitration by Russian banking and financial organizations and to understand whether they consider this method as an alternative to court proceedings. The study involved 26 financial organizations, including 24 banks, 1 insurance company, and 1 development institution. Despite the limited number of participants, the results of the study demonstrate an interesting range of opinions on the relevance of arbitration for the Russian financial market. Result of the study provide unique data for analyzing the criteria used by banks and financial institutions in choosing a particular method of dispute resolution, which is especially important and relevant in the new economic conditions due to the COVID-19 pandemic.
The study conducted by KIAP jointly with ICС Russia showed, among other things, that:
- the presence of a foreign element in the transaction is important factor for implementation of arbitration clause by Russian financial institutions. The more frequently arbitration clauses are used in inter-bank transactions, derivatives, and guarantees / counter-guarantees (23.1%);
- participants of the study treat as the main advantages of arbitration a duration of the proceedings (50%), enforceability of the award in other countries (46,2%). Moreover, participants appreciate possibility to choose arbitrators (34.6%), the confidentiality of the dispute (30.8%) and the possibility of applying foreign law to a transaction (30.8%);
- the most appreciated advantages of proceedings in state courts are cost (69.2%), the possibility of appeal (61.5 %) and the possibility of interim measures (57.7%);
- the most important criteria for the choice of particular arbitration institution are its reputation (76.9%) and good track-record of enforcement of awards (69.2%);
- while choosing a counsel, financial institutions first analyze reputation of the particular law firm (61.5%), then reputation of particular lawyers (46.2%) and legal fees (50%);
- improving situation with granting of interim measures is considered to be the main factor for the more frequent use of arbitration (53.8%). Besides, the possibility of expedited procedures (42.3%), as well as the use of arbitration clauses in government contracts (15.4%), are welcomed.
This study revealed that Russian financial institutions also lack relevant and complete information on some key advantages of arbitration proceedings which means that raising of awareness among financial institutions may lead to more frequent use of arbitration.
The full results of the study in Russian language can be found in our Analytics section or in the link.
From KIAP the study was conducted by Partner Anna Grishchenkova, Head of Banking & Finance practice Roman Suslov and Junior Associate Alexander Kartashov.