The National Bank of Ukraine (the NBU) is in the final stage of preparation for taking over the functions of regulating the markets for nonbank financial services from the National Commission for State Regulation of Financial Services Markets (the NFSC) starting 1 July 2020.
At present:
- the NBU has completed the necessary internal transformation: new structural units have been created with open vacancies for their future managers and specialists
- concepts (white papers) are being finalized for regulation of most nonbank financial services and preparation for their implementation
- new proposals are actively developed to draft new laws and regulations for such markets
- the reporting procedure established by the NBU for nonbank financial institutions has been transformed and almost finalized, it is currently tested for reporting by market participants
- database synchronization with the NFSC is currently underway.
Concept for future market regulation
The main principle the NBU complies with in building the future regulation is transparency. Under the “Split” preparation framework, the NBU has already published white papers on regulation of markets of credit unions, insurance companies, microcrediting by financial institutions, and the factoring market. White papers on regulation of pawnshops and financial leasing are soon to be published.
The NBU discusses all new approaches to regulation with market participants. It is important for the NBU to be customer-oriented and open in its work, as well as for market participants to have the opportunity to join in the efforts of creating the new regulation.
Models of the main regulation processes
At present, the NBU has a ready conceptual vision for most regulation areas, particularly, authorization of nonbank financial institutions, regulation of their activity and supervision over them, corrective and resolution measures, as well as a vision for effective rights protection of consumers of financial services and supervision over the market conduct.
The NBU’s structural units have developed approaches to administration of the key processes: licensing, off-site supervision, inspections, financial monitoring, consumer rights protection. All these changes will foster establishment of a solvent, sustainable and competitive market with the independent protection of rights of consumers of nonbank financial services.
New laws for financial markets regulation
The NBU together with experts and market participants are engaged in development of proposals to the key draft laws to regulate markets of nonbank financial institutions. In particular, the framework draft Law of Ukraine On Financial Services and Provision of Financial Services is currently at the stage of public discussion. Proposals to new versions of draft laws On Credit Unions, On Insurance, and On Financial Companies are to be presented shortly.
Preparation of information systems
As of 30 April 2020, 1,079 nonbank financial institutions (almost 60% in the financial market) had already gone through the test identification and connection to the NBU reporting system. Submission of reports to the NBU via its web portal is currently tested, nearly 10% of companies have already tested it successfully.
The NFSC, under the synchronization framework, continues to transfer to the NBU their comprehensive information system, files, registers, and databases necessary for ensuring the state regulation and supervision functions. Under the mutual arrangements, the synchronization should be completed by the end of May.
Split introduction will take place on time – on 1 July 2020
The NBU takes a proactive approach to the work with nonbank financial institutions and supports their smooth operation under the quarantine conditions because it is a matter of the availability of financial services. Moreover, at the time when the NBU was not yet the regulator of nonbank financial institutions, it submitted proposals to the Cabinet of Ministers of Ukraine on the necessity to support the market for nonbank financial services during the quarantine period, and proposals to the NFSC on the insurance market, in particular.
Thus, despite the quarantine imposed to combat the coronavirus pandemic, the NBU is getting ready to take over the powers of regulation and supervision over markets of nonbank financial institutions in full and on the agreed schedule of functions transfer. Revision of the timeframe is not necessary. On 1 July 2020, the NBU will be ready to fully assume the powers of the regulator of the nonbank financial services market.