We are the last country in Europe whose financial regulators are in the humiliating hybrid splits between the status of state bodies and independent institutions
Before the Constitution day, we received a clear signal that it is too early to celebrate progressiveness of the basic law.
The Constitutional Court, in its way, reminded to us that there is plenty room for improvement and that we should keep bringing Ukrainian legislation in line with standards and practices of developed countries.
With its decision on the National Commission for State Regulation of Energy and Public Utilities (NCSREPU), the Constitutional Court stated what had been obvious to experts for years: legislative support for activities of most Ukrainian national commissions and, in fact, for their establishment is deficient, because the basic law does not even provide for their existence.
This formulates the unacceptable level of political and conjunctural influence on the intended-to-be independent institutions.
National commissions in the financial sphere, including the NSSMC, have neither relevant powers, nor sufficient financial, human, and technical resources, or relevant status for the development and high-quality regulation of the national capital market.
That is, they cannot really perform their functions.
We are the last country in Europe whose financial regulators are in the humiliating hybrid splits between the status of state bodies and independent institutions. They are neither, in fact.
The uncertain status of national commissions is among the main reasons why Ukrainian capital markets do not fulfil their classical functions, serve the need of the real economy and population, or work to achieve economic growth.
This market is used to redistribute capital among a narrow circle and not to generate and raise funds for the public good.
In recent years, we the NSSMC team have managed to put an end to scheming and fraud on a massive scale; we work to increase investor protection and restore confidence in our market. However, these reforms are more of a choice and vision of our team rather than institutional requirements envisaged by law.
Our accomplishments are just as unprotected as the status of the NSSMC. If the team changes, the commission’s policies may change dramatically.
We cherished hopes and even counted on pledges made by politicians (especially by the former president and leaders of the-then coalition) that imperfection of the legislation that regulates activities and status of national commissions will quickly be eliminated; that is why we initiated the changes bringing Ukrainian standards closer to EU requirements.
But, sadly, reforms started and came to their end only at our level.
For several years on end, draft laws have been submitted to parliament (#2413а the split law, #6303d on enhancing investor protection, and #9035 on the development of derivatives), and relevant amendments to the Constitution have not been even discussed. These amendments are envisaged by the Association Agreement, and international organizations and donors of Ukraine have insisted on their implementation.
But politicians are in no hurry…
Though these amendments are the issue of economic security and financial stability. It is independent institutions that must regulate national markets. No matter what they are called; what matters is the conditions.
Regulators set rules, rather than implement state policy on priorities and prices. Because of this, they are not part of government vertical or body of executive power. They are specialized institutions which perform several functions: administrative, regulatory, and law enforcement.
Regulators should be a place where experts, not politicians or governmental officials, work. They should be protected from influence – changeable political conjuncture, populist interference of non-professionals, or “state” need for mobilization.
Financial markets call for collective, open, predictable, and expert decisions. Money does not tolerate political carelessness or governmental voluntarism; it goes wherever rules exist. And where there are no rules, fraudsters dominate the place.
The absence of quality regulation has resulted in the captive and primitive Ukrainian capital market we have today, without modern tools, proper standards, or investor protection.
In the competitiveness report by the World Economic Forum, our country ranked 117th for the level of financial system development, and 110th out of 140 reviewed countries for the level of institutional development (an indicator which, inter alia, takes into consideration the existence of independent regulators).
This is the reason why we attract fortune-seekers rather than investors.
This is the reason why Ukrainians risk investing money into square meters rather than reliable pension funds.
This is the reason why our enterprises have limited capacity for fundraising and development.
Unfortunately, the new political team which came to power also has no vision of how to systemically address this issue.
An attempt to partially or artificially solve the problems of regulators will lead to short-term and conjunctural political consequences and unable comprehensive, mutually reinforcing the development of the financial, agrarian, energy and telecommunication sectors of our economy.
Timur Khromaev, Chairman of the National securities and stock market commission
Source: Economic Pravda