On 20 July 2018, a regular meeting of the Financial Stability Council (FSC) was held with the participation of the Governor of the National Bank of Ukraine (NBU) Yakiv Smolii, Acting Minister of Finance of Ukraine (MoF) Oksana Markarova, Head of the National Securities and Stock Market Commission (NSSMC) Timur Khromaev, Head of the National Commission for State Regulation of Financial Services Markets (NCSRFS) IhorPashko, Managing Director of the Deposit Guarantee Fund Kostiantyn Vorushylin, First Deputy Governor of the NBU Kateryna Rozhkova, and Deputy Minister of Finance Yuri Geletiy, and other representatives of these institutions.
Suspending Cooperation with the IMF Poses a Major risk to Financial Stability
At the start of the meeting, members of the FSC traditionally discussed risks to the financial system. The FSC emphasized that implementing structural reforms prescribed by the IMF-supported EFF program is crucial to maintaining macrofinancial stability and ensuring access to the IMF’s and other foreign partners’ funding. This is especially important for preserving demand for Ukrainian sovereign obligations in light of the global tendency for investors to exit emerging markets’ assets and given the necessity to make significant repayments on external public debt over the coming two years.
Along with this, in considering the macroeconomic situation, the FSC highlighted the acceleration of economic growth from the start of the year amid active private consumption and investment demand and underscored stable FX market conditions and falling inflation.
Coordination of Fiscal and Monetary Policies
Participants of the meeting devoted much attention to issues of coordination of fiscal and monetary policies. The NBU emphasized its intent to avoid fiscal dominance in any form, including direct and indirect support of budget spending. The MoF stressed the need to intensify cooperation between the NBU and MoF in terms of coordination of fiscal and monetary policy initiatives. The FSC supported the need for the further implementation of the reforms to ensure price and financial stability.
Regulatory Framework for Cryptocurrency Transactions
During the FSC meeting, the Head of the NSSMC presented a concept of the state regulation of cryptocurrency transactions in Ukraine.
The approach outlines the legal status of cryptocurrency and tokens as a type of financial instruments. Under this approach, the cryptocurrency market regulator is the NSSMC. The document determines the roles and functions of other state authorities (the NBU, MoF (State Fiscal Service), and State Financial Monitoring Service) in regulating the circulation of these instruments, the licensing of transaction participants, information disclosure, etc.
Overall, the Financial Stability Council endorsed the proposed concept. Timur Khromaev, Head of the Commission, said: “This is the first essential step that confirms the state’s readiness to develop a legal and regulatory framework that would ensure the transparency and quality of relations between the investors and participants on cryptocurrency market.”
Settling the Issue of Non-Performing loans and Debt Burden on the DGF
The FSC continued focusing on the issue of non-performing loans (NPLs) at state-owned banks.
In order to facilitate the implementation of measures aimed at resolving the NPL-related issues of state-owned banks, the FSC endorsed theMoF’s suggestion to establish a Special Independent Committee within the FSC with a focus on NPLs. Moreover, the Financial Stability Council considered and endorsed an action plan proposed by the Deposit Guarantee Fund to help the Fund reduce its debt burden. In the future, this will prevent the Fund’s potential insolvency.
The Financial Stability Council was established by a presidential decree in March 2015. The FSC is comprised of the Governor of the National Bank of Ukraine, the Minister of Finance of Ukraine (co-chairs of the FSC), the Head of the National Securities and Stock Market Commission, the Head of the National Commission for State Regulation of Financial Services Markets, the Managing Director of the Deposit Guarantee Fund, a Deputy Governor of the National Bank of Ukraine, and a Deputy Minister of Finance of Ukraine.
The FSC provides a forum for professional discussion of systemic risk posing a threat to the country’s financial stability. The next meeting has been scheduled for October 2018.