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Two Regulators Instead of Three: Liquidation of the National Commission for Regulation of Financial Services Markets and Consolidation of Regulation of Financial Services Markets

Date of publication: 25 January 2019

Oleh Kulyk, Lawyer

Source: Yurydychna Gazeta

At present, draft law No. 2413-a On Introduction of Amendments to Certain Legislative Acts of Ukraine Concerning the Consolidation of Functions for State Regulation of Financial Services Markets, also known as the draft law on “split”, is awaiting a second reading in the Parliament. The project proposes to liquidate the National Commission for State Regulation of Financial Services Markets (National Financial Services Commission), as well as delegate its powers to the National Bank of Ukraine (NBU) and the National Securities and Stock Market Commission (NSSMC).

The model with three regulators of the financial services market has been existing in Ukraine since 2003. The NBU supervises the banking services market, money transferring activities and foreign exchange transactions. The NSSMC is responsible for the securities and derivative securities market. The National Financial Services Commission governs the activities of the non-banking sector. However, over 15 years, such regulatory policies have not demonstrated their effectiveness. The imperfection of the legal framework for regulating non-banking financial activities, the duplication of functions by supervisory and regulatory bodies, and the excessive regulation of licensing procedures by financial institutions are the factors that hinder the development of the non-banking financial services market.

The Scope of the Reform

Pursuant to Draft Law No. 2413-a, the National Bank will get the following into the sphere of its regulation and supervision: insurance companies, pawnshops, credit unions, leasing and factor companies, microfinance organizations. The NSSMC, in turn, will receive powers to regulate and supervise non-state pension funds, construction finance funds, real estate funds and their administrators/managers. Therefore, if the relevant law comes into force, the NBU, for example, will be responsible for a significant share of the non-banking financial market and will become the main body that will issue licenses to both banks and most non-banking financial institutions.

The NBU has already prepared a draft White Book on the regulation of the non-banking financial services market and has developed a plan for further actions after the adoption of draft Law No. 2413-a, in particular, in that part of the non-banking financial services market that will be within the NBU’s competence in the future. The NSSMC is also preparing for receiving new powers. In this context, it should be said that the adoption of draft Law No. 2413-a will be the first step towards the introduction of the second level of the pension system, which is extremely important for the start of the pension reform in Ukraine.

Government authorities will need to ensure the continuity of all processes for the transfer of powers. To this end, the draft Law provides for a transition period after the adoption of the Law. In the first twelve months, certain provisions of the Law will not apply – the NBU and the NSSMC will direct their efforts to implement an effective and coordinated transfer of powers from the National Financial Services Commission. During this period, the consolidated regulators will analyze the market of non-banking financial services, prepare new by-laws and regulations and introduce amendments to the existing ones, and will coordinate their work with market players. That is, no one will immediately feel any particular changes. For a certain period of time the rules of the game will remain the same as before. Subsequently, only the authorities will change in the future, to which, the functions of supervision and regulation will be accordingly transferred.


Businesses are interested in simplifying licensing procedures and shortening the terms of their duration. First of all, this concerns the licensing procedure, and the adoption of the draft Law No. 2413-а just gives reason to expect a decrease in the number of procedures for getting an access to the market.

The reform of the Ukrainian financial sector is also a part of the measures aimed at the implementation of EU legal acts in accordance with the EU-Ukraine Association Agreement, as well as one of the conditions for cooperation between our country and the IMF. Noting the progress of Ukraine in resolving problems in the banking sector, the World Bank also expects to continue reforming the financial sector, namely the non-banking sector of the market.

The international experience demonstrates that the concentration of functions on the state regulation of financial services markets can be met quite often. For example, in the European Union in almost twenty countries, it is precisely such an integrated model that the draft Law No. 2413-a offers. And it has been working successfully for decades.

Some participants in the non-banking sector are raising the alarm stating that the new regulators, having received the powers of the National Financial Services Commission, will begin to push the weak players from the market. First of all, we are talking about insurance companies, which will be within the sphere of the NBU’s responsibility. Insurers fear that just as the NBU used to withdraw licenses from dozens of banks since 2014, they may await the same fate.

Such a development of events cannot be ruled out. Today, there is a situation in the insurance market where only less than half of the current 300 insurance companies are active. In addition, almost 80% of all customers are serviced by the 30 largest insurers. The major problem is the non-settlement of insurance payments by insurers. Hundreds of thousands of customers, who have been waiting for payments for years, are being affected. The insurance market is a clear example of the need to effect the reform in the non-banking sector.