Inspections of professional participants

One of the main elements of state regulation in the sphere of professional activity on the capital markets and organized commodity markets is the control over activities in this area by conducting scheduled and unscheduled on-site inspections by the NSSMC.

The following types of professional activity are carried out in the capital markets:

1. activities for trading in financial instruments;
2. activities for the organization of trade in financial instruments;
3. clearing activities;
4. depository activity;
5. asset management activities of institutional investors;
6. property management activities to finance construction and / or real estate transactions;
7. activities for the administration of private pension funds.

Professional activities on organization of trade in products on commodity exchanges are carried out on organized commodity markets.

Carrying out on-site inspections is one of the actions to implement the tasks of the NSSMC in accordance with the Law of Ukraine On State Regulation of Capital Markets and Organized Commodity Markets.

In accordance with generally accepted IOSCO Principles, the regulator of the capital markets and organized commodity markets should have the power to inspect, investigate and supervise, collect evidence of the presence of signs of wrongdoing in capital market participants and take actions to prevent violations of the law. The regulatory system should provide effective and equitable methods of inspections, investigations and oversight.

On-site scheduled (unscheduled) inspections are carried out in order to:

1. clarify the purpose and essence of operations carried out by licensees, the Central Securities Depository;
2. identify the risks that may pose a threat to the security and sustainability of licensees, the Central Securities Depository, as well as the stability of the financial system of Ukraine;
3. assess the quality of the risk management system of licensees, the Central Securities Depository;
4. check the observance of clients’ rights (depositors, consumers of financial services, depositors, participants) by licensees, the Central Securities Depository;
5. inspect the compliance with the law by the subjects of inspection (except for SROs and the Central Securities Depository) in case of revocation of the license;
6. inspect the compliance with the functions assigned to self-regulatory organizations;
7. to assess the subject’s compliance with the requirements of the legislation on the securities market, in the system of accumulative pension provision, the legislation on the protection of the rights of consumers of financial services, including the regulations of the NSSMC.

The NSSMC as a regulator has different aims by using the powers of control over inspections (inspections) effectively, they are:

• to promote compliance with legal requirements;
• to prevent offenses (abuses) in capital markets and organized commodity markets;
• to ensure respect for the rights and interests of investors and promote their confidence, reduce, minimize and manage systemic risks, create and ensure the functioning of fair, efficient and transparent financial markets.

Currently, the NSSMC’s control function is carried out taking into account the requirements of the Procedure for inspections in the sphere of professional activities in the stock market (securities market) and activities in the funded pension system, approved by the NSSMC Resolution on 24.11.2020 № 708, in particular, by conducting, on-site scheduled and unscheduled inspections.

The inspection is carried out according to the following principles:

• equality of rights and legitimate interests of each subject of inspection;
• guaranteeing the rights and legitimate interests of each subject of inspections;
• carrying out inspections only if there are grounds and in the manner prescribed by law;
• openness, transparency, planning based on the principle of risk assessment.

Prior to the scheduled inspection, a preliminary meeting of the head of the relevant structural unit of the NSSMC may be held with the head of the subject of the inspection and with the participation of the head of the inspection team that will conduct the scheduled inspection. During the meeting organizational issues regarding the future inspection are discussed.

In order to prevent offenses, the NSSMC will introduce:

• holding conferences / seminars with a wide range of participants in capital markets and organized commodity markets;
• publishing recommendations for action and practical measures to help improve compliance;
• identifying development trends and providing recommendations to participants in capital markets and organized commodity markets;
• informing professional participants about the results of inspections and identified trends in professional activities by posting generalized information on the official website of the NSSMC

The reasons according to which the NSSMC has the right to consider the expediency of the unscheduled inspection:

1) on the initiative of the NSSMC, if there is information about the signs of violation by the subject of inspection and/or the need to verify the subject of inspection of its compliance with the requirements of the Legislation of Ukraine, including regulatory legal acts of the NSSMC;

2) in execution of court decisions, that have entered into legal force;

3) on the initiative of the NSSMC in case the licensee submits an application for cancellation of the license for certain types of professional activity in the capital markets and organized commodity markets to the NSSMC;

4) the NSSMC finds  the new documents (circumstances) that were not (could not have been) known during the preliminary scheduled or unscheduled inspection and that may affect the conclusions on the results of the inspection;

5) the issuance of the Resolution on the suspension of proceedings in the case of an offense in order to conduct additional inspection by an authorized person of the NSSMC;

6) the need to verify the compliance of the subject of inspection with the Resolutions of the NSSMC or Orders of authorized persons of the NSSMC to eliminate violations of the legal requirements.

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Approximate Schedule of Inspections by the National Securities and Stock Market Commission in the sphere of professional activity in capital markets and organized commodity markets

– The Order On Approval of the Approximate Schedule of Inspections by the National Securities and Stock Market Commission in the Field of Professional Activity in the Capital Markets and Organized Commodity Markets in the First Quarter of 2022

List of subjects for scheduled inspections