On August 15 ForUm held an online-conference with the head of the National commission on state control over financial service market Andriy Stasevski. In the course of the dialogue with our readers the official told about his vision of the Ukrainian market of financial services, about government's plans to fight pyramid schemes and other. Here is the full text of the conference.
- Andriy: Good day! What is the role of the National commission in the system of state control?
The National commission on financial service market is one of the three state regulators on the market of financial services along with the National Bank and National commission on securities and fun market.
The purpose of the control is to provide activity and development of competitive market of financial services in Ukraine and to protect interests of financial services' users.
To prove the importance of the proper state control over financial market the National commission has changed its status and not reports directly to the President of Ukraine.
- A financier: Good day, Mr. Stasevski! How would you estimate the current state of natural persons lending? What kinds of financial services have promising future in Ukraine and why?
Demand for lending of natural persons exceeds the real volume of crediting. It is proved by the rate of growth of services, provided by financial institutions other than banks. The most popular now are small short-term credits.
In 2011, the part of market, being controlled by the National commission and involving non-bank financial institutions, increased by half - by 47%. However, there are two major problems: insufficient protection of creditors' rights and potential pressure on the consumer market of means, credited to natural persons. It is needed to improve mechanisms of loan recoveries and to find long-term resources for lending. As for the first problem, the government and the National bank have already worked out a legislative initiative.
As for the accumulation of long-term resources, the efforts of the government in general and our National commission in particular are focused on the reformation of insurance market and pension provision market. As an example, the matter concerns the launch of the second, funded level of pension provision.
Another example is mechanisms of work of life insurance companies, which can grant credits to their clients. Unfortunately, the volume of the life insurance market is insufficient (UAH 1.3 billion in 2011). To develop the life insurance market we must create a system of guaranteed payments on life insurance contracts.
The National commission is finishing the development of the corresponding draft bill, provided by the National plan of actions for 2012.
- MMM: How can we fight MMM and other pyramid schemes in Ukraine? People complain that "the state does not do anything..."
The issue of MMM and other pyramid schemes is first of all the question of financial literacy of people. The infamous MMM was never registered by financial regulators and its activity was never controlled. However, regulators repeatedly warned about possible risks, including through mass media.
The National commission and Interior Ministry are now preparing a legislative initiative on introduction of criminal responsibility for launch and assistance to pyramid schemes. In addition, the government and the National Bank are working out a program of financial education.
- Max: What are the methods the National commission indent to use to control financial institutions? Does it mean the market participants should get ready to mass penalties and various restrictions?
Unfortunately, there are still a lot violations being conducted by financial institutions, including poor observance of legislation requirements and consumers'' rights. In order to reduce the number of violations the National commission will take all possible measures, provided by the law, including fines, enforcement actions, deprivation of licenses, etc. This is out state obligation and it cannot be otherwise. My answer is not to get ready for penalties but to carry out activities without violations.
- Oleksandr: It's been almost half a year since your appointment as the head of the commission and the appointment of the commission staff. Have you managed to find out the main problems in the work of the regulator and to work out methods to solve them?
Off-market regulatory structure needs overall improvement. World financial markets have undergone global changes for the last 2-3 years. The current basic law on regulation was adopted in 2001. Since then there have been certain amendments made, but in general, the legislation remains 10 years behind the evolution of financial markets.
To provide effective control over financial markets we need totally new system of prudential regulation. Various scandals with lending unions or heads of financing funds are a good proof of imperfect regulatory system.
There are also a problem of material support of the activity of the regulator, a problem of disclosure of information and a problem of protection of rights of financial services' users.
- George: What are main principles and approaches you intend to use in the activity of the National commission?
I believe that the National commission on state control over financial service market must become a significant and influential structure in the system of power bodies. We have all necessary conditions for this, including legislative, authoritative and organizational ones. The National commission must carry out economic reforms initiated by the President, assist to the development of the financial market and provide proper control over its participants. I am sure my colleagues from the commission share my approaches.
- Zinoviy: What do mean by transparent and predictable actions of regulator?
I mean continuous dialogue with the participants of the market, cooperation with associations and other bodies of the state power and joint actions for the development of the market itself.
- Hryhoriy: Are you going to change the list of reasons to deny a license in order to prevent groundless refusals?
To change the regulatory base and to put in order other organizational issues the newly formed commission need from three to five months. For the moment, we work under the regulatory base in force. And I want to point out that all current refusals are grounded. Every decision on refusal is made collectively, thus the judgmental factor and possible abuse of power have been reduced to minimum.
- Koshchey: How fast will you eliminate the facts of delayed considerations of application documents? There are complains that the commission considers documents for months and still does not make decisions.
True. We know about these complains, and at the stage of transition from old regulator to the new one it was the biggest problem. For market participants it seems like nothing has changed - there was one commission now there is another.
Sure enough, everything has changed, including the order of consideration (now decisions are issued collectively) and transition of personnel (not all workers of the old commission continue working in the new one, thus training of new personnel is required).
I am telling this not to make an excuse, but to describe the true situation of the initial stage of work of the new National commission.
In addition, we have frequent malfunctions of equipment and software, which is out of date and worn-out.
We ask for certain understanding, as all these changes require time. The majority of problems have already been solved. We have asked for government's support to eliminate all flaws in the shortest time possible.
- Leonid: How will you fight corruption in the new commission, as in the old one corruption was wide-spread?
Once again I want to point out that in the new National commission all decisions are made collectively, thus judgmental factor is reduced to minimum. We also need to improve the regulatory base, removing all controversial, far-fetched or useless norms. Finally, we need to improve skills and increase responsibility of officials of financial institutions in order to 'vaccinate' them against corruption.
- Tetyana Laryna: What is the annual volume of Ukrainian financial services market? What are the new rules of the game on this market? And how do you accustom to the prudential regulation?
By the end of 2011 the total amount of assets of the non-bank financial institutions made about UAH 80 billion with the major part belonging to insurance companies - 60.2%. The volume of financial services, granted by -bank financial institutions in 2011 made UAH 47.8 billion.
Last year some important legislative changes were adopted to improve the control over the activities of financial markets.
Firstly, the law now specifies requirements to the disclosure of information by financial institutions to consumers, owners and regulations. Financial institutions must disclose enough information for consumers to make a decision and for regulators to make estimations.
Secondly, financial companies are now obliged to disclose information about ultimate owners, and persons who intend to buy a share in a financial institution must first obtain the agreement of the regulator.
Thirdly, the law establishes tasks and targets of prudential regulation, being carried out by the National commission. The prudential regulation is provided by conducting estimation of the overall financial standing of a financial institution, of the results of its activity, of systems and quality of management, of observance of the obligatory regulations and other requirements.
- Evelina: How do you estimate the current financial health of Ukraine in general?
- I'd say it is stable with sufficient margin of safety. The state and citizens are not fully happy with the financial markets, and for this, the President initiated the reforms and the regulator carries them out.
- Anton Mykolayevych: As far as I know the National commission is engaged into introduction of the pension reform. What is your role in it, as how is the reform progressing?
- Indeed, the commission in engaged in the realization of the pension reform, but for the moment we are focused on creation and introduction of the financial defined contribution system of obligatory pension insurance, namely the development of the draft bill on transfer of insurance contributions to the defined contribution system, the introduction of integrated system of data exchange between regulatory agencies.
- shakil: Good day. What must be changed on the insurance market to make it transparent and civilized?
As I mentioned before, the insurance sector has the biggest share on the markets, controlled by the National commission. Gross collected premium in 2011 made UAH 22.7 billion, though its full potential has not been realized yet.
Necessary changes for the insurance market include level increase of insurance companies' capitalization and introduction of principles of insurance supervision in accordance with the International association of insurance supervision agencies.
The matter concerns the establishment of requirements on paying capacity, accounts and records, system of information disclosure, management systems if insurance companies. These tasks are set in the program of economic reforms for 2010-2014. A new variant of the law on insurance has already been developed and adopted in its first reading. Now the parliament is preparing the document for its second reading.
- Nadia: Mr. Stasevski, don't you think it would be better to forbid credit unions to take deposits from natural persons. Credit unions are financial cooperatives in their nature and must work with contributed shares only. The practice shows that depositors are the first to suffer from bankruptcy of such unions. Besides, it will prevent scammers to create false unions and cheat on people.
Answer to this question will determine further development of the system of credit cooperation. Banning credit unions from taking deposits from natural persons is a drastic measure, but I am not sure it is the best one. The majority of credit unions does fulfill their obligations before the depositors and continue working successfully. As a safety measure to protect depositors of credit unions, the National Bank was given the right to conduct prudential supervision of such credit union and to create proper conditions for functioning of a different system of credit cooperation, including cooperative banks and united credit unions. NBU and National commission are working on it now.
- Svitlana: Does the National commission regulate such kind of activity as "club trading", as users of this service often become victims of their high-handedness because there are no legislative norms to control this process?
A project of corresponding licensing conditions have been developed by the National commission and published to receive comments and propositions. Yesterday, the commission considered all comments and propositions to make some amendments to the document. Later the project will be delivered to the State agency on entrepreneurship for approval. In case of approval, the document will be adopted and registered in the Justice Ministry.
- Kostyantyn: For the time you've been in office, have you observed activities of real foreign investment groups, interested in long-term investment projects in Ukraine, aimed at development of REAL sector of economy?
Western investors, including such large companies as Bruno Sfornі and Horizont Capital are indeed interested in the financial market of Ukraine. They are interested in a long-range investing into the financial market of our country.
- Inna: You were speaking about imperfect basic law on financial services and necessity to prepare its new variant. Does this approach concern other special laws on separate markets on financial services?
I believe, yes. There is a necessity to adopt a new law on insurance, and the National commission is working on it. I had meetings with associations of pawnshops, credit unions, leasing companies and we agreed to work out together necessary amendments to their special laws. I believe the process of legislation improvement in the sphere of financial markets will take a year and a half or two years.
- Andriy: Good day! What is the role of the National commission in the system of state control?
The National commission on financial service market is one of the three state regulators on the market of financial services along with the National Bank and National commission on securities and fun market.
The purpose of the control is to provide activity and development of competitive market of financial services in Ukraine and to protect interests of financial services' users.
To prove the importance of the proper state control over financial market the National commission has changed its status and not reports directly to the President of Ukraine.
- A financier: Good day, Mr. Stasevski! How would you estimate the current state of natural persons lending? What kinds of financial services have promising future in Ukraine and why?
Demand for lending of natural persons exceeds the real volume of crediting. It is proved by the rate of growth of services, provided by financial institutions other than banks. The most popular now are small short-term credits.
In 2011, the part of market, being controlled by the National commission and involving non-bank financial institutions, increased by half - by 47%. However, there are two major problems: insufficient protection of creditors' rights and potential pressure on the consumer market of means, credited to natural persons. It is needed to improve mechanisms of loan recoveries and to find long-term resources for lending. As for the first problem, the government and the National bank have already worked out a legislative initiative.
As for the accumulation of long-term resources, the efforts of the government in general and our National commission in particular are focused on the reformation of insurance market and pension provision market. As an example, the matter concerns the launch of the second, funded level of pension provision.
Another example is mechanisms of work of life insurance companies, which can grant credits to their clients. Unfortunately, the volume of the life insurance market is insufficient (UAH 1.3 billion in 2011). To develop the life insurance market we must create a system of guaranteed payments on life insurance contracts.
The National commission is finishing the development of the corresponding draft bill, provided by the National plan of actions for 2012.
- MMM: How can we fight MMM and other pyramid schemes in Ukraine? People complain that "the state does not do anything..."
The issue of MMM and other pyramid schemes is first of all the question of financial literacy of people. The infamous MMM was never registered by financial regulators and its activity was never controlled. However, regulators repeatedly warned about possible risks, including through mass media.
The National commission and Interior Ministry are now preparing a legislative initiative on introduction of criminal responsibility for launch and assistance to pyramid schemes. In addition, the government and the National Bank are working out a program of financial education.
- Max: What are the methods the National commission indent to use to control financial institutions? Does it mean the market participants should get ready to mass penalties and various restrictions?
Unfortunately, there are still a lot violations being conducted by financial institutions, including poor observance of legislation requirements and consumers'' rights. In order to reduce the number of violations the National commission will take all possible measures, provided by the law, including fines, enforcement actions, deprivation of licenses, etc. This is out state obligation and it cannot be otherwise. My answer is not to get ready for penalties but to carry out activities without violations.
- Oleksandr: It's been almost half a year since your appointment as the head of the commission and the appointment of the commission staff. Have you managed to find out the main problems in the work of the regulator and to work out methods to solve them?
Off-market regulatory structure needs overall improvement. World financial markets have undergone global changes for the last 2-3 years. The current basic law on regulation was adopted in 2001. Since then there have been certain amendments made, but in general, the legislation remains 10 years behind the evolution of financial markets.
To provide effective control over financial markets we need totally new system of prudential regulation. Various scandals with lending unions or heads of financing funds are a good proof of imperfect regulatory system.
There are also a problem of material support of the activity of the regulator, a problem of disclosure of information and a problem of protection of rights of financial services' users.
- George: What are main principles and approaches you intend to use in the activity of the National commission?
I believe that the National commission on state control over financial service market must become a significant and influential structure in the system of power bodies. We have all necessary conditions for this, including legislative, authoritative and organizational ones. The National commission must carry out economic reforms initiated by the President, assist to the development of the financial market and provide proper control over its participants. I am sure my colleagues from the commission share my approaches.
- Zinoviy: What do mean by transparent and predictable actions of regulator?
I mean continuous dialogue with the participants of the market, cooperation with associations and other bodies of the state power and joint actions for the development of the market itself.
- Hryhoriy: Are you going to change the list of reasons to deny a license in order to prevent groundless refusals?
To change the regulatory base and to put in order other organizational issues the newly formed commission need from three to five months. For the moment, we work under the regulatory base in force. And I want to point out that all current refusals are grounded. Every decision on refusal is made collectively, thus the judgmental factor and possible abuse of power have been reduced to minimum.
- Koshchey: How fast will you eliminate the facts of delayed considerations of application documents? There are complains that the commission considers documents for months and still does not make decisions.
True. We know about these complains, and at the stage of transition from old regulator to the new one it was the biggest problem. For market participants it seems like nothing has changed - there was one commission now there is another.
Sure enough, everything has changed, including the order of consideration (now decisions are issued collectively) and transition of personnel (not all workers of the old commission continue working in the new one, thus training of new personnel is required).
I am telling this not to make an excuse, but to describe the true situation of the initial stage of work of the new National commission.
In addition, we have frequent malfunctions of equipment and software, which is out of date and worn-out.
We ask for certain understanding, as all these changes require time. The majority of problems have already been solved. We have asked for government's support to eliminate all flaws in the shortest time possible.
- Leonid: How will you fight corruption in the new commission, as in the old one corruption was wide-spread?
Once again I want to point out that in the new National commission all decisions are made collectively, thus judgmental factor is reduced to minimum. We also need to improve the regulatory base, removing all controversial, far-fetched or useless norms. Finally, we need to improve skills and increase responsibility of officials of financial institutions in order to 'vaccinate' them against corruption.
- Tetyana Laryna: What is the annual volume of Ukrainian financial services market? What are the new rules of the game on this market? And how do you accustom to the prudential regulation?
By the end of 2011 the total amount of assets of the non-bank financial institutions made about UAH 80 billion with the major part belonging to insurance companies - 60.2%. The volume of financial services, granted by -bank financial institutions in 2011 made UAH 47.8 billion.
Last year some important legislative changes were adopted to improve the control over the activities of financial markets.
Firstly, the law now specifies requirements to the disclosure of information by financial institutions to consumers, owners and regulations. Financial institutions must disclose enough information for consumers to make a decision and for regulators to make estimations.
Secondly, financial companies are now obliged to disclose information about ultimate owners, and persons who intend to buy a share in a financial institution must first obtain the agreement of the regulator.
Thirdly, the law establishes tasks and targets of prudential regulation, being carried out by the National commission. The prudential regulation is provided by conducting estimation of the overall financial standing of a financial institution, of the results of its activity, of systems and quality of management, of observance of the obligatory regulations and other requirements.
- Evelina: How do you estimate the current financial health of Ukraine in general?
- I'd say it is stable with sufficient margin of safety. The state and citizens are not fully happy with the financial markets, and for this, the President initiated the reforms and the regulator carries them out.
- Anton Mykolayevych: As far as I know the National commission is engaged into introduction of the pension reform. What is your role in it, as how is the reform progressing?
- Indeed, the commission in engaged in the realization of the pension reform, but for the moment we are focused on creation and introduction of the financial defined contribution system of obligatory pension insurance, namely the development of the draft bill on transfer of insurance contributions to the defined contribution system, the introduction of integrated system of data exchange between regulatory agencies.
- shakil: Good day. What must be changed on the insurance market to make it transparent and civilized?
As I mentioned before, the insurance sector has the biggest share on the markets, controlled by the National commission. Gross collected premium in 2011 made UAH 22.7 billion, though its full potential has not been realized yet.
Necessary changes for the insurance market include level increase of insurance companies' capitalization and introduction of principles of insurance supervision in accordance with the International association of insurance supervision agencies.
The matter concerns the establishment of requirements on paying capacity, accounts and records, system of information disclosure, management systems if insurance companies. These tasks are set in the program of economic reforms for 2010-2014. A new variant of the law on insurance has already been developed and adopted in its first reading. Now the parliament is preparing the document for its second reading.
- Nadia: Mr. Stasevski, don't you think it would be better to forbid credit unions to take deposits from natural persons. Credit unions are financial cooperatives in their nature and must work with contributed shares only. The practice shows that depositors are the first to suffer from bankruptcy of such unions. Besides, it will prevent scammers to create false unions and cheat on people.
Answer to this question will determine further development of the system of credit cooperation. Banning credit unions from taking deposits from natural persons is a drastic measure, but I am not sure it is the best one. The majority of credit unions does fulfill their obligations before the depositors and continue working successfully. As a safety measure to protect depositors of credit unions, the National Bank was given the right to conduct prudential supervision of such credit union and to create proper conditions for functioning of a different system of credit cooperation, including cooperative banks and united credit unions. NBU and National commission are working on it now.
- Svitlana: Does the National commission regulate such kind of activity as "club trading", as users of this service often become victims of their high-handedness because there are no legislative norms to control this process?
A project of corresponding licensing conditions have been developed by the National commission and published to receive comments and propositions. Yesterday, the commission considered all comments and propositions to make some amendments to the document. Later the project will be delivered to the State agency on entrepreneurship for approval. In case of approval, the document will be adopted and registered in the Justice Ministry.
- Kostyantyn: For the time you've been in office, have you observed activities of real foreign investment groups, interested in long-term investment projects in Ukraine, aimed at development of REAL sector of economy?
Western investors, including such large companies as Bruno Sfornі and Horizont Capital are indeed interested in the financial market of Ukraine. They are interested in a long-range investing into the financial market of our country.
- Inna: You were speaking about imperfect basic law on financial services and necessity to prepare its new variant. Does this approach concern other special laws on separate markets on financial services?
I believe, yes. There is a necessity to adopt a new law on insurance, and the National commission is working on it. I had meetings with associations of pawnshops, credit unions, leasing companies and we agreed to work out together necessary amendments to their special laws. I believe the process of legislation improvement in the sphere of financial markets will take a year and a half or two years.
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