Official statement of the NSSMC on dissemination of false information in the media

In connection with the publication of false information in some media about the activities of the capital markets regulator to protect the rights of investors of LLC Freedom Finance Ukraine, National Securities and Stock Market Commission (NSSMC) hereby informs the following.

History of sanctions imposed

In October 2022, sanctions were imposed on a legal entity resident in Ukraine that provides financial services. NSSMC was not involved in the discussion process during the preparation of documents on imposing sanctions on LLC Freedom Finance Ukraine. As a result, all assets of this legal entity were blocked, including money and securities belonging to its clients. Given that the Law on Sanctions does not provide for the possibility to divide the assets of a sanctioned person into its own and clients‘ assets, the clients’ assets were blocked on the accounts of LLC Freedom Finance Ukraine.

Suspension of a licence vs cancellation of a licence

The cancellation of LLC Freedom Finance Ukraine licence means that NSSMC loses control over the market participant, which is no longer a licensee. This eliminates the need for the market participant to store documents and financial monitoring data.

It is important to note that the revocation of the licence and liquidation of LLC Freedom Finance Ukraine in no way ensures the return of funds to customers. And no resolution or NSSMC Resolution has a higher legal force than the Law on Sanctions, as the bank accounts at the level of banking institutions and the National Bank of Ukraine are blocked, and the suspension of the licence is not a reason to lift the restrictions on the status of the bank account.

As long as LLC Freedom Finance Ukraine is a capital markets licensee, it performs the functions of a primary financial monitoring entity (PFM), i.e. it keeps a client’s financial monitoring questionnaire and data on the client’s risk level in terms of AML legislation (on Prevention and Counteraction to Money Laundering…).

Therefore, in November 2022, NSSMC decided to suspend the licence, which made it impossible for the sanctioned person to operate in the capital markets and gave time to find effective ways to resolve the problem with the frozen client assets.

Further steps of NSSMC – public vs non-public

NSSMC has suspended the licence of Freedom Finance Ukraine LLC, but this does not resolve the situation in general. Therefore, NSSMC has developed the text of amendments to the Law of Ukraine on Sanctions, namely in the part where it will be possible to regulate actions with the assets of clients of a sanctioned professional capital market participant, in particular the Law on the Depository System and the Law on Capital Markets. These issues are currently not regulated by law.

These changes do not mitigate sanctions against a legal entity, and this is very important. It is only about defining actions with the assets of its clients. It also sets out a list of actions and deadlines for each of the parties involved.

It is important that this draft law has been agreed with the NBU, the National Depository of Ukraine and the Settlement Centre, the NAPC and the IWG on Sanctions.

NSSMC sent the draft law to MPs for consideration in September 2023, which it publicly announced, and only in December 2023 did the regulator receive a response from the relevant VRU committee on the conceptual disagreement with the approaches laid down in the text.

Subsequently, NSSMC appealed to the Chairman of the Verkhovna Rada of Ukraine and the First Vice Prime Minister of Ukraine – Minister of Economy of Ukraine to help resolve this issue and support NSSMC’s initiative on the mechanism proposed in the draft law.

However, NSSMC’s draft law never made it to the Verkhovna Rada. Therefore, immediately after the adoption of the new Law on NSSMC in June 2024, it became possible to appoint an interim administrator, which NSSMC announced to the public.

The administrator has already assessed and systematised some of the liabilities, which allowed him to formulate proposals on the possibility of recovering certain assets. Cooperation with state institutions is currently underway to agree on the criteria for verifying the clients of LLC Freedom Finance Ukraine to determine the list of persons entitled to recover assets. The proposed mechanism should ensure that certain assets are not returned to sanctioned persons and their associates.

Blocking of NSSMC’s draft law and new text from MPs

After the relevant Parliamentary Committee refused to consider the draft law developed by the Commission, MP Ms Vasylevska-Smahliuk set up a closed group, which did not include Commissioners. Moreover, other MPs were not allowed to join the group. The result of the group’s work was a draft law on LLC Freedom Finance Ukraine that contradicted many provisions of banking and financial legislation.

The draft law developed by this group was not supported by international stakeholders or the Interagency Working Group on the Implementation of the State Sanctions Policy. After that, the media published a story that presented the situation in a distorted way and accused NSSMC of delaying the resolution of the problem with the assets of LLC Freedom Finance Ukraine’s clients.

Speculations on the topic of blocked client assets are not true

The widespread information that commercial banks or a sanctioned person are allegedly making profits on the frozen assets of LLC Freedom Finance Ukraine clients is false and does not correspond to the real state of affairs.

All blocked assets and customer funds are conditionally located in several «places»:
1. The part of the funds that was not invested in securities in time remains on accounts with a commercial bank. Importantly, the commercial bank immediately transfers these funds to a correspondent account with the NBU, which ensures their safety. Therefore, these funds cannot be used by a commercial bank either for profit or as reserves.
2. The main assets are held in the NBU depository, where the state domestic bonds are accounted for. The redemption and coupon proceeds are blocked at the level of the NBU depository and have not been transferred to banking institutions.
3. Corporate securities and related interest payments are blocked at the National Depository of Ukraine, which guarantees the security and transparency of these transactions.

Therefore, the allegations that the bank uses customer liquidity for its own income are unfounded. All actions are carried out in strict compliance with the sanctions regime and the requirements of the regulator.

Protecting investors’ rights is a key focus for NSSMC

The massive dismissals of employees and the downtime of the regulator, as reported in the media, are completely untrue. The internal reorganisation is intended to improve the efficiency and increase the institutional capacity of NSSMC.