Tashkent, Uzbekistan (UzDaily.com) -- S&P Global Ratings said that Freedom Holding Corp.’s capital and earnings in the fiscal year ending 31 March 2021, should stay resilient despite a recent data breach at its main operating company in Russia, Investment Co. Freedom Finance LLC (Freedom RU; B-/Positive/B). 

This is because the group already increased its fee income over the six months ended on 30 September 2020, by 70%, since trade volumes increased and clients’ activity remained robust over the fourth quarter of 2020. We also believe that an increase in the number of retail brokerage accounts in Russia is a long-term trend supported by fundamental indicators (mostly low interest rates) and should continue, supporting Freedom Finance RU’s growth opportunities and earnings capacity. 

However, the data breach might indicate that the company’s risk management and data protection practices need further improvement. The breach may reduce clients’ confidence and somewhat increase the likelihood of our downside scenario, whereby flight of clientele or slower inflow of new clients both in Russia and Kazakhstan prevent the group from further building up fee income. While at this stage we do not observe any immediate impact and Russian clients in general have been tolerant to data breaches at financial institutions, we will continue to closely monitor the stability of Freedom RU’s customer base. The regulatory response to the event is also uncertain at this stage.

On 25 December 2020, Freedom RU confirmed that it suffered a data breach due to a phishing attack. Allegedly, personal data of approximately 16,800 clients was compromised, representing about 20% of its client base in Russia. 

The positive outlook on the Freedom group entities reflects our expectations that the group will gradually build up its commission income, thanks to increased retail interest in the stock markets in Russia and Kazakhstan, while maintaining good capitalization despite its pipeline of mergers and acquisitions.