Starting 1 July 2020, the NBU became the regulator of the market for nonbank financial services of the financial sector, which comprises insurance companies, leasing companies, factoring companies, credit unions, pawnshops, and other financial institutions.
In this section, we have collected information related to the peculiarities of the transition of non-bank financial institutions under the regulation and supervision of the National Bank, including training, changes in paperwork and other useful information to help market participants get used to the new regulator.
At the same time, the information that we will continue to publish on a regular basis, which will relate to regulatory decisions (on licensing, supervision, inspections, financial monitoring, etc.), you can find in the relevant subpages of the section "Supervision".
Information on licenses issued by the National Bank to non-banking institutions
What will the split change?
Today there are three financial regulators: the NBU, the National Securities and Stock Market Commission (NSSMC), and the National Commission for State Regulation of Financial Services Markets (NFSC). After the split has been implemented, there will be two regulators left: the NBU, and the NSSMC. They will operate more effectively.
The NBU will regulate insurance companies, leasing companies, factoring companies, credit unions, pawnshops, and other financial institutions. Private pension funds, pension fund administrators, and construction financing funds will be regulated and supervised by the NSSMC.
What was the split meant to accomplish from the outset?
The split will ensure transparency, reliability, and efficiency of the nonbank and financial market. Financial markets are communicating vessels. We have made one part of the financial market – the banking sector – transparent and stable. But the other part remains obscure. At this time, we can guarantee neither financial stability, nor improvement in the investment allure of the financial sector as a whole, nor protection of consumer rights.
The split will ensure the safety of Ukrainians as consumers of financial services. After all, the split will establish clear requirements for nonbank financial institutions, and build systematic control over their compliance with these requirements. Eventually, we will be able to prevent the emergence of financial pyramids or fraudulent schemes such as Bank Mykhailivskyi by ensuring there is a fully transparent and sound financial sector.
The consolidated model of supervision of the nonbank financial market with only two regulators, the NBU and the NSSMC, is precisely the type of model that will complete the financial sector reform that started in 2014 after the Revolution of Dignity.
After the split has been implemented, the market will be offered a more effective regulation approach without excessive control from the regulator. Requirements for financial institutions will depend on the risk to consumers and the company’s impact on the market. For instance, if the company does not raise funds from customers, then its activities are less risky, and so it should have to meet fewer requirements, and the requirements themselves should be simpler.
At the same time, each company in the market will have to meet three basic requirements: availability and adequacy of equity, transparent ownership structure, and compliance with financial monitoring laws. This will ensure there is a level playing field for companies to operate. In addition, this will gradually revitalize the market, as these requirements will prevent the use of nonbank financial institutions in various schemes, such as tax evasion.
What will be the immediate effect of the split for participants of the nonbank financial market once the law has been passed? What will the NBU do first?
We will do nothing that may rattle the nonbank financial market. In other words, no radical changes will take place, either tomorrow or the day after or in a few months, for that matter. The law on split stipulates a transition period that will last until 1 July 2020. During the transition, the current regulation will be in force, and the NFSC will operate at its full capacity. This means that the NFSC will continue to regulate the market up until and including 30 June, and the NBU will take over this function starting 1 July 2020.
Our focus during the transition will be to analyze the nonbank financial market from top to bottom. The NBU will draw up new sector-specific regulations and requirements that will take into account the results of this analysis. As it does so, the NBU will maintain an intensive dialogue with the market.
During the transition period, the NBU will take inventory of the laws that govern each sector. This work will start within a month of the law’s adoption. Based on the review of the legislation, the NBU plans to prepare White Papers with detailed proposals on the regulation of certain segments of the nonbank financial market. These documents will be widely discussed by financial institutions, experts, and other stakeholders (consumers, creditors, and financial service investors).
During the transition, the NBU and NFSC will prepare for the handover of responsibilities. We will hold competitions for new positions in the relevant structural units that will be created or supplemented by new specialists to work with nonbank financial markets; we will receive from the NFSC all documents, archives, and reporting; we will engage market representatives in the conduct of test submissions of reporting to the NBU; etc.
How will you build the institutional capacity to regulate the nonbank financial market?
The NBU’s new powers will logically supplement the functions that are already in operation. In the main, this means that the NBU will create a single center of responsibility for the stability of the financial system.
We already have effective and time-tested mechanisms and procedures, which we use when supervising banks. The NBU uses these mechanisms and procedures in supervising the transfers of funds and currency transactions conducted by nonbank financial institutions.
By law, the NBU is institutionally independent, meaning that we don’t have to have our regulations approved by the State Regulatory Authority or registered by the Ministry of Justice of Ukraine. The moratorium on inspections, which has been in force in the nonbank financial market for nearly two years now, does not apply to the NBU either. This will enable us to be more flexible when supervising the market and to respond to negative signals adequately and on time.