Lead expert

Cherniy Ruslan
cherniy@finmaidan.com
Мельничук Віталій
melnychuk9@gmail.com

Civil Society Organisations:

  • Centre for Economic Strategy
  • Institute for Economic Research and Policy Consulting
  • CASE-Ukraine
ISSUES TO BE RESOLVED BY THE REFORM

The stage of cleansing and transition from financial repressions to financial liberalization, which has been undergone in due time by banking and non-banking financial systems of all the transformed countries, has been delayed in the financial sector of Ukraine.
We expect that by 2020 the conditions for a stable economic development of Ukraine will be created, based on the transformation of the financial sector of Ukraine into a competitive environment with an investment and innovation climate. First and foremost, we focus on the three major sectors of the financial market of Ukraine: banking sector, stock market, and insurance sector.
The main issues at the middle and final stages of the transformation of banking systems, characteristic of the Ukrainian banking sector, as defined by the World Bank, are the following:

  • - Poor crediting, big credits to the public sector, financial and industrial groups, and «clients with good connections», which had resulted in a large amount of bad credits.
  • - Public banks, crediting either their «traditional» clients, or «clients with good connections», keep playing a considerable role.
  • - Liberalization of bank licenses has resulted in emergence of pocket banks which credit the affiliated persons or launder money.
  • - Closed nature of the financial market has allowed the local elites to maintain or increase their economic and political influence, while the system of state deposit guarantee provides them an unimpeded access to the deposit resources.
  • - Impeded development of the environment necessary for the emergence of local capital market (equity and debt) — it is necessary to develop the regulatory framework, to ensure the actual implementation of bankruptcy procedures, to strengthen protection of minority shareholders, and to formalize the rules of conduct of market participants.

Along with the reforms aimed at addressing these issues, Ukraine needs to bring the practices in the market of pension provision and insurance in line with the international standards.
Balances of insurers need cleansing of troubled assets; risk provisions are formed too late and not in full, which is a result of the non-implementation of effective monitoring of the insurance sector on the basis of IAIS and Solvency II. Defined contribution pension system should be introduced.
As a result of the delay, the amount of long-term investments in Ukraine at the expense of long-term reserves of insurers remains extremely low.
Conditions for the protection of agricultural producers through agricultural insurance have not been shaped. Conditions for voluntary healthcare insurance have not been created, which limits the possibilities of Ukrainian citizens to provide themselves with healthcare insurance on a voluntary basis.
Consumer rights of those using the service of insurance of civil liability of vehicle owners should be strengthened, especially in view of extremely low compensation payments for damage to life, health, and working ability of traffic accident victims.

GOAL I. STABLE AND TRANSPARENT BANKING SYSTEM WITH A HIGH LEVEL OF TRUST PERFORMING KEY FUNCTIONS: SAVING, ACCUMULATION, FINANCIAL MEDIATION, AND ACCOUNT MANAGEMENT SUPPORT IN THE ECONOMIC SECTOR
  1. Ensure a transparent and accountable activity of the National Bank through establishing an integral and professional Board of the National Bank of Ukraine in order to ensure a proper level of control over the regulator’s activity.

Decision-making authority: Verkhovna Rada, President.

  1. Restore trust in the banking system and to improve crediting by making the ownership structure
    and financial reporting of banks more transparent, improving deposit insurance system, and offering additional opportunities to diversify assets.

Decision-making authority: Verkhovna Rada, Ministry of Finance, National Bank.

  1. Minimize toxic assets – formalize legislatively proper protection of the rights of creditors and financial services consumers, to regulate the issue of bad debts, and to establish the procedure of personal bankruptcy.

Decision-making authority: Verkhovna Rada.

  1. Clearly determine the functions and the role of state banks in the country, ensure high-quality corporate management and establishment of independent supervisory boards in state banks and/or privatization of state banks.

Decision-making authority: Verkhovna Rada, Ministry of Finance.

GOAL II. LIBERALIZED CURRENT ACCOUNT AND CAPITAL MARKET
  1. Formalize legislatively the goal and the objectives of exchange rate policy.

Decision-making authority: Verkhovna Rada, National Bank, Cabinet of Ministers.

  1. Ensure free movement of capital with the European Union and the Organization for Economic Cooperation and Development countries.

Decision-making authority: Verkhovna Rada, National Bank, Cabinet of Ministers.

  1. Easy access to the financial services markets.

Decision-making authority: Verkhovna Rada, Ministry of Finance, National Bank, National Commission for Regulation of Financial Services Markets of Ukraine.

GOAL III. UPGRADED PENSION SYSTEM WITH THREE LEVELS OF PENSION PROVISION
  1. Balance the pay-as-you-go public pension system by making pensions dependent on the rate of contributions, the retirement age – economically justified, and the Pension Fund – institutionally capable and transparent.

Decision-making authority: Verkhovna Rada, Ministry of Social Policy, Ministry of Finance.

  1. Introduce a defined contribution system of mandatory state pension insurance.

Decision-making authority: Verkhovna Rada, Ministry of Social Policy, Ministry of Finance.

  1. Create conditions for the development of private pension funds by offering incentives for businesses and individuals and introducing European standards of governance, transparency, and reliability of private pension funds.

Decision-making authority: Verkhovna Rada, Ministry of Social Policy, Ministry of Finance.

GOAL IV. DEVELOPED TRANSPARENT CLASSICAL EUROPEAN INSURANCE MARKET
  1. Formalize legislatively the development of a transparent market of insurance services.

Decision-making authority: Verkhovna Rada, Ministry of Finance, National Commission for Regulation of Financial Services Markets of Ukraine.

  1. Analyze reasonability of creating a deposit insurance system for accumulative types of life insurance as a protection of property rights.

Decision-making authority: Verkhovna Rada, Ministry of Finance, National Commission for Regulation of Financial Services Markets of Ukraine.

GOAL V. IMPROVED INSTITUTIONAL REGULATION OF THE FINANCIAL MARKET
  1. Implement the European standards of supervision and regulation in the capital markets and develop a favorable legal framework to ensure the development of the financial sector in part of access to information, transparent market rules to guarantee its reliability and stability, protection of minority shareholders’ rights, and improvement of bankruptcy proceedings.

Decision-making authority: Verkhovna Rada, Ministry of Finance, National Commission for Regulation of Financial Services Markets of Ukraine, National Securities and Stock Market Commission.

  1. Improve the system of hedging, develop a civilized market of derivatives.

Decision-making authority: Verkhovna Rada, Ministry of Finance, National Securities and Stock Market Commission.

ADDITIONAL INFORMATION

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