**Ukraine‘s Financial System in Crisis**
Ukraine is struggling with a fragmented financial regulatory system that is undermining investor protection, hindering reconstruction efforts, and risking national security. The country’s ongoing conflict with Russia has highlighted the need for a more effective approach to regulating the financial services market.
**The Problem of Fragmented Regulation**
In 2019, Ukraine’s parliament split the responsibilities of the National Commission for Regulation of Financial Services Markets between two bodies: the National Bank of Ukraine (NBU) and the National Securities and Stock Market Commission (NSSMC). While this reform aimed to improve regulation, it has instead created more problems than solutions. The NSSMC was tasked with regulating non-state pension funds and construction financing, but five years later, concerns remain over its capabilities.
**Investor Protection in Jeopardy**
The situation with investor protection is particularly concerning. In 2022, Freedom Finance Ukraine, one of the largest brokers and depository institutions in the country, was sanctioned for activities threatening national security. Despite legislation barring sanctioned entities from participating in capital markets, the NSSMC only suspended the firm’s license rather than revoking it. This left clients vulnerable and unable to access their assets.
**Stalled Expansion of International Links**
The expansion of Ukraine’s link with the international central securities depository, Clearstream, has also been hindered by inefficiency. The NBU quickly updated the regulatory framework to implement changes, but the NSSMC delayed approval for months, despite intervention from the International Monetary Fund (IMF).
**Conflict of Interest and Political Influence**
The National Depository of Ukraine (NDU) presents a troubling conflict of interest, with the NSSMC controlling 56% of the votes at shareholder meetings. This has allowed the NSSMC to push through changes that benefit itself, despite opposition.
**Conclusion**
Ukraine’s “split” regulatory model has proven problematic for the country. Over the past five years, it has generated more issues than solutions, and no regulatory body seems to be adequately protecting investors’ rights. Consolidating regulatory functions under a single, strong body is necessary to ensure a more effective approach and address the risks facing Ukraine’s financial system.
Read More @ kyivindependent.com