#Ucraïna: el legislador ha de garantir l'estabilitat i la previsibilitat de la regulació legal del sector financer

The European Union and Ukraine have signed a memorandum of understanding this year, in 2018, as well as the loan agreement on the provision of macro-financial assistance for €1 billion. According to politicians, Ukraine will remain an important strategic partner, and the country continues receiving financial support, despite the fact that the EU is going through some hard times.

The European Parliament allocates significant sums to the maintenance of the oligarchic Ukrainian regime, not particularly interested in the nitty-gritty of Ukrainian politics and the steps to legalize corruption schemes through the adoption of laws that directly contradict the EU law.

Take a look, for example, at Law №2413, which the Verkhovna Rada of Ukraine (the main legislative body of the country) is about to adopt this Thursday, 22 November. This bill proposes to transfer the reins of the financial services market into the hands of the National Bank of Ukraine. Such a decision could lead to the establishment of monopoly in the system of financial structures and open the way to the legalization of corruption schemes and pressure on business. As a result, this may lead to the redistribution of the main players in the financial services market of Ukraine. Many companies, due to financial and rehearsal risks following the adoption of the above-mentioned law, are now leaving the territory of Ukraine.

Law No. 2413 contradicts the Constitution of Ukraine, where it is clearly established that the laws of Ukraine define the limits of authority, according to which state bodies can act. The legislation of the European Union provides for the elimination of any mechanisms employed for monitoring the actions of National Banks as regulators.

The ECHR has repeatedly stated in its decisions the following: “National legislation should provide adequate legal protection against arbitrariness and with sufficient clarity indicate the limits of power and influence, granted to the competent authorities and the method of their implementation.”

During the years of financial and economic crisis in Ukraine, the national currency has fallen by more than three times, many of the depositors have lost their deposits as a result of the collapse of the banking system. The question still remains open. Is it worth transferring control of the financial market to a structure with performs such results?

It is necessary to pay tribute to Europe, which quickly responded to the 2014 crisis in Ukraine, by allocating generous funding for macroeconomic stabilization measures. Since then, the EU has allocated €3.4bn (more than $4.2bn) as part of the three macro-financial assistance packages (IPF) for Ukraine, €600 million of which is still on hold. This is the largest amount of IPA that the EU has ever provided to the non-EU state. An additional €2bn by the IPP was promised during the Eastern Partnership Summit in December 2017. This tranche will increase total aid up to the amount of €15bn.

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However, the really good Samaritan in the face of European politicians is now wondering whether it is worth further supporting the country, which itself is consistently destroying the banking system first, and now – it comes to the gradual destruction of the insurance one. After all, pouring finance into a country which occupies the shameful 130th place in the ranking of corruption conducted and released by Transparency International is fraught with financial and reputational losses.

About the financial market corruption in Ukraine

Now, the entire financial services market in Ukraine can be called bank-centric: over 75% of the assets of this market are in the hands of state and private banks.

If we take the information as for 2017, the volume of funds attracted by banks to the accounts of residents increased by 8.6%, reaching 778.3bn hryvnia (about $29bn). The majority of this growth was created by an increase in corporate sector accounts (+ 10.1%), which is not surprising, given the continuing inflation in Ukraine, which reached the level of 13.67% in 2017. We see that the growth of corporate clients’ funds in their accounts at banks does not exceed the annual rate of inflation. The unstable exchange rate of the national currency, in turn, led last year to a decrease in deposits of the business sector in foreign currency by 2.8%, or by 147 million US dollars. Ukrainian households continue the trend established for the business sector: their annual growth was at the level of about 4.5%.

There is also an increase in lending activity: the volume of loans issued in the corporate sector amounted up to 825.9bn UAH (+ 2.3%). At the same time, the volume of foreign currency loans decreased by 12.8% in dollar terms.

The growth of attracted funds in insurance companies continued. Under life insurance contracts, insurance companies accumulated almost 2bn hryvnia insurance premiums. This ensured their growth by 0.5bn hryvnia, and under a universal insurance contract, assets grew by 2.6bn hryvnia.

Almost without any change, the Ukrainian stock market is experiencing a state of lethargic sleep. For the past few years, there have been no serious trend movements. In 2016, 107 issues of bonds of Ukrainian enterprises in the amount of UAH 6.26bn were registered (a decrease of 4.08bn hryvnias, compared with 2015). At the same time, 98 issues of shares were carried out during the year, in the amount of UAH 53.67bn, which meant an increase of 5.46bn UAH.

Even sadder is the situation in other sectors of the financial market, which cannot ‘be born’ as independent market segments and find their potential and relevant clients. The reason is the general distrust of Ukrainians towards any institutions of the financial market, as well as towards the idea of its tools as “a bait of fraudsters and robbers”.

Ambicions europees de finançament ucraïnès

Speaking about the development of the financial market in Ukraine, we must be clear that the overwhelming majority of agents operating in this market are focused on participating, in the present or in the nearest future, in the united European financial market. They are interested in attracting, on the one hand, large European players to its own market, and on the other, in attracting European corporate and private agents as consumers of their own services.

El mercat, principalment durant els anys 2000-2010 i 2014-2016, va ser seguit per les autoritats ucraïneses en matèria de regulació estatal del mercat financer, la interacció de les institucions i empreses estatals i de mercat. Com a resultat, a Ucraïna es va crear un sistema diversificat de regulació del mercat de serveis financers bastant modern.

Currently, government regulation of the financial services market is carried out by several institutions.

És a dir:

On the market of banking services, - National Bank of Ukraine;
on the securities market and derivative securities, - the State Commission on Securities and Stock Market, and;
on other types of financial services markets (first of all, the insurance market), - the State Commission for Regulation of Financial Services Markets (Financial Services Commission), especially created by the Decree of the President of Ukraine No. 297/2003 dated April 4, 2003.

According to the current legislation, the main tasks of the Financial Services Commission are: carrying out a unified and effective state policy in the provision of financial services; development and implementation of a financial services market development strategy; implementation of state regulation and supervision over the provision of financial services and compliance with legislation in this area; protecting the rights of consumers of financial services by applying measures to prevent violations of the law in the financial services market and terminating them, summarizing the practice of applying the legislation of Ukraine on the functioning of the financial services market, developing and making proposals for its improvement implementation of internationally recognized rules for the development of the financial services market; promoting integration into the European and global financial services markets.

When resolving them, the Financial Services Commission of Ukraine relies both on the national legislation on the European integration of Ukraine and the EU, and on the European legislation itself. Speaking about the Ukrainian regulatory field, we are talking about a number of legislative and program-declarative documents. Legislative acts include the Constitution of Ukraine, the Law of Ukraine “On the National Bank of Ukraine”, the Law of Ukraine “On Financial Services and State Regulation of Financial Services Markets”, as well as a number of other legislative acts and acts of the Cabinet of Ministers. The second group includes: The Agreement on Cooperation between Ukraine and the EU, the Memorandum on Economic and Financial Policies, the Comprehensive Program of the Financial Sector up to 2020, and the Program of Activities of the Cabinet of Ministers of Ukraine up to 2020.

When speaking about European legislation, we are also talking about the implementation of the provisions of the EU Directive 98/78 EC of the European Parliament and the Council of Europe dated October 27, 1998, which establishes additional supervision procedures and mechanisms for regulating the activities of insurance companies and organizations of non-banking sector of the financial market. However, the implementation of European legislation in Ukraine does not take into account the fact that in the European Union, the formation of an integrated European financial market and a unified legal system, processes of financial liberalization and deregulation, the pressure of European Commission directives, in fact, led to a combination of different institutional approaches to regulation, despite the existence of a different conventional model. This is due to the fact that a model of the financial market and any generally accepted traditions of activity in this market simply did not exist in Ukraine.

The formation of Ukrainian legislation on financial markets pursued two, to a certain extent, contradictory goals: the development of the financial market infrastructure and the growth of resources redistributed by its institutions, and the revival of trust in financial institutions by the business environment and households. It is necessary to recognize that these goals were somehow achieved at the level of rulemaking, but remained unfulfilled de facto.

Tanmateix, ja el 2015 va començar a aparèixer la perillosa tendència de desacceleració de la reforma del sector financer, que va augmentar la presència legal fixa de l’Estat en aquest. En particular, hi ha una política sistemàtica d’incrementar l’impacte regulatori del Banc Nacional d’Ucraïna i la monopolització real de les disposicions del principal organisme regulador del mercat financer.

Megaregultor or market clearing?

The existence of this tendency and the attempts to implement it in the legislation is indicated by the analysis of draft law No. 2413а 'On introducing changes in certain legislative acts of Ukraine on the consolidation of the functions of state regulation of financial services markets'.

The idea of adopting this legislation was expressed back in 2015 by the President of Ukraine, Petro Poroshenko. According to the draft law, it provides for the transfer of the functions of regulation and supervision of the market for non-banking financial services into the hands of the National Bank of Ukraine and the actual abolition of the National Commission for State Regulation of Financial Services Markets (Financial Services). Adoption of the bill in the form in which it approached the second reading in the Verkhovna Rada (Ukrainian Parliament) actually introduces the monopolistic position of the National Bank in the market, opens up broad opportunities for arbitrary and adventurous actions of the mega-regulator and the spread of various corrupt and fraudulent actions in the market. In fact, the adoption of this bill unravels all the positive things that have been done earlier for the civilized regulation of the financial market in Ukraine. In addition, the adoption of this bill will undoubtedly have a negative impact on the entry of European companies into the Ukrainian market (especially the insurance ones, as well as brokerage and deposit businesses).

Such a legislative decision also still does have certain positive aspects, on which its authors and lobbyists are oriented.

El primer aspecte positiu és que la NBU té moltes més oportunitats d’influir en el mercat financer, té a la seva disposició eines desenvolupades durant anys d’influència en el mercat, experiència en l’exercici de funcions de supervisió, introducció d’informes, nombrosos efectius bastant ben formats i empleats amb experiència.

El segon aspecte positiu consisteix en un major grau d’elaboració de la legislació bancària, el seu compliment amb diversos acords internacionals, la presència d’una quantitat suficient de pràctica administrativa i judicial nacional i internacional per considerar qüestions controvertides de la seva aplicació.

However, it is necessary to say about the negative aspects of making such a decision. Moreover, in our opinion, these negative aspects are more significant for making a final decision on this issue. The first negative circumstance is directly related to the fact of making such a decision and is that its implementation will take quite a long time, during which the probability of uncontrollable behavior of market participants increases significantly, the number of cases of violation of the rights of consumers of financial services increases.

La segona circumstància és que, segons el seu estatus legal actual, el Banc Nacional d'Ucraïna no podrà respondre adequadament a les queixes dels consumidors de serveis financers i prendre les mesures administratives adequades al respecte. A més, el fet mateix de la transferència d’un gran nombre d’institucions sota la seva regulació serà fonamental per a la NBU. Parlem de més de 2000 entitats econòmiques amb diverses formes de propietat i formes organitzatives i jurídiques. En l'actualitat, la NBU no té ni l'experiència ni la capacitat personal adequades per dur a terme aquesta tasca.

El tercer punt negatiu significatiu és que la proposta d’innovació legislativa treu les institucions del sector financer no bancari del mercat financer fora del marc legal de llicències, regulació, realització d’inspeccions i prestació de serveis administratius.

La quarta circumstància negativa és que el projecte de llei atorga a la NBU l'autoritat per determinar els seus problemes regulatoris i de supervisió amb els seus actes normatius i jurídics. Aquesta disposició està en clara contradicció amb els principis de regulació legal, proclamats a Ucraïna i generalment acceptats a la UE, i també redueix la transparència del mecanisme regulador i de les activitats de la NBU. Aquesta circumstància també s’associa amb el risc de greus conseqüències polítiques, ja que la NBU es converteix en un organisme que regula no només les seves pròpies activitats, sinó que també rep un control gairebé complet sobre tota l’economia del país en els seus propis interessos. Per obtenir exemples d’una transformació tan negativa de les activitats dels bancs nacionals a l’espai post-soviètic, no cal anar lluny: Rússia, Uzbekistan i Tadjikistan.

The fifth circumstance causing a negative assessment of the proposed bill is its corrupt nature. In fact, it legalizes the implementation of licensing, inspections, provision of administrative services at the discretion of the NBU, without establishing any procedures or restrictions. At the same time, today, these relations are clearly regulated by laws, certain transparent procedures, which the regulator must hold with. Decisions will be made at the discretion of the official, whom the law does not limit. The text of the new law provides for the establishment, instead of an exhaustive list of the grounds for unscheduled inspections, their open list, which contradicts the general European trends in lawmaking. The text of the law excludes an indication of the maximum time for conducting inspections, canceled the procedure established by law to conduct them. The norm of the new law, which states that the results of the audit will not be drawn up as an act of verification, but a report of the auditor, which will only reflect his position, indicates a significantly lower level of legal procedure.

The seventh reason for making, at least, adjustments to the text of the new law is the violation of the principles of banking and trade secrets by its norms. Namely, the new law provides unlimited powers for access to information of non-banking financial institutions. The draft law establishes the obligation for non-bank financial institutions in conducting inspections to provide representatives of the NBU with “access in a viewing mode to all information systems, sampling and uploading the necessary information for further analysis”. This creates the conditions for the uncontrolled use of the obtained information, which is a commercial secret.

La vuitena omissió, o una decisió deliberada per frenar les reformes de la integració europea de la legislació financera ucraïnesa, suposa una reducció significativa de la capacitat d’apel·lar contra les accions de la NBU, per portar els seus empleats a la justícia per accions il·legals. El projecte de llei realment transfereix les funcions de regulació estatal i supervisió d’institucions financeres no bancàries del Comitè Nacional de Serveis Financers (un òrgan estatal les activitats del qual estan clarament regulades per llei) a un dels comitès de la NBU. La Junta de NBU rebrà el dret de crear un Comitè de supervisió i regulació dels mercats de serveis financers no bancaris, supervisió (supervisió) dels sistemes de pagament. Al mateix temps, la llei no defineix el procediment per formar un comitè i els requisits per a les persones que en poden formar part, el procediment per a les seves activitats, la presa de decisions i el seu recurs. Com a resultat, el Comitè tindrà la facultat d'aplicar mesures coercitives, inclosa la decisió de revocar les llicències, i de reconèixer les institucions financeres no bancàries com a insolvents. Mentre que per als bancs, aquestes qüestions són exclusivament de la competència del consell de la NBU i no es poden delegar als comitès. La llei també estableix que la decisió del Comitè NBU serà inapel·lable. Tanmateix, els participants al mercat poden apel·lar-hi davant dels tribunals, d'acord amb la part 2 de l'art. 74 de la Llei "Sobre la NBU", apel·lar una decisió, acte o acció de la NBU no suspèn la seva execució. A més, el projecte de llei preveu la decisió del Comitè d’imposar una multa a l’estat del document executiu, que entra en vigor als 30 dies naturals de la data de la seva adopció. L'absència de procediments d'apel·lació en el projecte de llei fa que els participants del mercat estiguin desprotegits en cas d'accions arbitràries del Comitè.

El novè aspecte negatiu del projecte de llei està relacionat amb el fet que preveu el procediment de decisió de normes a Ucraïna establert per la Constitució d’Ucraïna, les decisions del Tribunal Constitucional d’Ucraïna i una sèrie d’actes legislatius. Fins ara, ni el Ministeri de Justícia ni cap altre organisme estatal analitzen el PNA NBU per complir la Constitució, la legislació vigent, inclosa la legislació anticorrupció, que contradiu els requisits de la UE i que ja ha conduït a l’adopció d’actes reguladors per part de l’NBU. infringir la Constitució, la legislació vigent i els drets humans. El projecte de llei dedueix efectivament els actes reguladors del Banc Nacional de l’efecte de la Llei d’Ucraïna “Sobre els fonaments de la política reguladora estatal en l’àmbit de l’activitat econòmica”.

Summarizing the proposed bill No. 2413a, we can conclude that it is contradictory to the Constitution of Ukraine.

El projecte de llei ofereix a la NBU l'oportunitat de determinar els seus propis poders, a la seva discreció, per prendre actes jurídics (que són obligatoris per a les persones físiques i jurídiques) i per controlar-se. Això és contrari a la Constitució d’Ucraïna, on s’estableix clarament que les lleis d’Ucraïna defineixen els límits de l’autoritat i la manera com poden actuar els òrgans governamentals (part 2 de l’article 19 de la Constitució).

L’adopció d’aquesta llei també és contrària a la posició jurídica dels màxims òrgans judicials de la Unió Europea. El TEDH ha afirmat reiteradament en les seves decisions: "La legislació nacional ha de proporcionar una protecció jurídica adequada contra l'arbitrarietat i amb suficient claredat ha d'indicar els límits d'autoritat atorgats a les autoritats competents i el mètode de la seva implementació".

What needs to be done to keep the 'vessels' of the economy clean?

In conclusion of our review, I would like to briefly highlight what, in our opinion, should be done by the Ukrainian legislators in order to continue the positive trend in the development of the country's financial market.

En primer lloc, en cap cas es pot parlar d’aturar i fins i tot reduir l’activitat de la Comissió de Serveis Financers d’Ucraïna. L’eficàcia de l’impacte regulador, com demostra l’experiència europea, està determinada en gran mesura pel grau de participació de la societat civil en ella, pel grau de confiança que tenen les decisions del regulador per part dels agents del mercat. En l'actualitat, la Comissió de Serveis Financers és un òrgan col·legiat, que representa de manera eficaç i plena els interessos de diversos subjectes del mercat de serveis financers. Si parlem de la millora de les seves activitats, hauríem de parlar d’aprofundir la seva relació amb la societat civil i la interacció amb l’entorn empresarial, la consolidació normativa de models efectius d’aquesta interacció.

En segon lloc, una de les principals raons de la desconfiança dels ucraïnesos en les institucions financeres és l’alfabetització econòmica i financera extremadament baixa no només de la majoria de la població, sinó també dels empresaris. Les decisions reguladores necessàries destinades a eliminar l'analfabetisme, la formació de coneixements objectius sobre les possibilitats de diversos instruments financers i els riscos associats.

En tercer lloc, el mercat financer, especialment el seu sector no bancari, s'ha de retirar de la influència dels grups oligàrquics d'Ucraïna, mantenint el seu atractiu inversor tant per als inversors nacionals com estrangers.

Fourth, the Ukrainian legislator must ensure the stability and predictability of the legal regulation of the financial sector. That stability and predictability are the main criteria for the choice of a positive decision by investors. No one will invest money where things may be changing every following day.

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