The Parliament registered a draft that will finally protect Ukrainians from financial pyramids and fraud

The Verkhovna Rada of Ukraine has registered a draft Law proposing an effective mechanism for protecting Ukrainian citizens from abuse in the financial market, which complies with modern international standards. In particular, counteraction to financial pyramids, such as the situation with B2B Jewelry, Arcade Bank, etc.; bringing fraudsters to justice; compensation to the affected citizens for their stolen funds.

Unfortunately, in Ukraine today, due to ineffective legislation that does not comply with the international standards, the financial regulator does not interact effectively with Ukrainian law enforcement and foreign financial regulators to prevent financial fraud, bringing fraudsters criminals to justice and ensuring the return of stolen money to victims of financial transactions. At present, we can only observe the consequences of financial abuse and we have a large number of citizens who have lost their own funds due to dubious investment projects.  In order to prevent such large-scale financial manipulations and to detect unscrupulous activities of certain companies, there should be all the necessary opportunities and means provided by the European and world practice.

Also, the issue of increasing investor protection is especially relevant in the context of implementation of the second level of the pension system – the accumulative level.

The registered draft Law aims to completely change the status of the Ukrainian market to one that will be completely unacceptable for the activity of scammers and will comply with the international standards. It provides for new effective regulatory supervision, namely: to receive and exchange banking and other information on the activities of fraudsters between the state financial and law enforcement agencies of Ukraine and other countries;  to block dubious accounts before the court resolution on the merits of the case, to support prosecutors in court proceedings;  interaction with foreign financial regulators in order to use their opportunities to return money from other jurisdictions.

The draft Law “On the National Securities and Exchanges Commission” (registration number №4684) proposes to significantly increase the level of responsibility of all participants in the capital markets and restore investor confidence in Ukraine.

For greater efficiency of the regulator, the draft Law proposes to introduce three levels of market surveillance: evaluation – inspections – case review. At each of these levels, there will be separate authorized persons who will perform their functions independently of each other. The main purpose of the evaluation is to prevent violations and identify risks in advance. The next level, inspections, is aimed at identifying signs and documenting violations of the law. The regulator should be able to conduct inspections, to request documents and explanations not only from professional market participants (regulated entities), but also from any persons who may be suspected of illegal actions in the capital market.  At the third level there will be a Board of Commissioners for cases, selected by a special procedure. The Board will consider cases and make decisions on the application of sanctions and/or measures of influence provided by current legislation.

“Bringing Ukrainian legislation in line with the international standards will provide the necessary tools to protect investors and combat securities abuse. The introduction of an effective system of market surveillance will allow not only to investigate abuses, but most importantly – to prevent them from occurring and to identify risks to market functioning in advance,” – Tymur Khromayev, the Chairman of the NSSMC, said.

The draft Law expands the possibilities of international cooperation of the regulator, in particular, joining to the IOSCO MoU (The International Organization of Securities Commissions). According to the MoU with the International Monetary Fund, signed on April 2, 2017, Ukraine has committed to change the status and capabilities of the NSSMC by amending the current legislation, which will allow Ukraine to become a signatory to the IOSCO MMoU.

This issue concerns cooperation within the framework of the IOSCO MoU in order to be able to conduct cross-border activities and investigations. This will reduce both the losses of private investors and the losses of the state, in particular, from tax optimization with the use of dubious securities or other “suspicious” financial transactions.

Effective international cooperation is one of the important criteria which the investors pay attention to when choosing a jurisdiction to invest. When the regulator is unable to respond adequately to requests from foreign counterparts (to “provide information), foreign regulators consider this country as a “high-risk” country and do not recommend their investors to invest in it. Today, Ukraine is such a “high-risk” country.

The draft Law also implements the provisions of a number of important EU Directives into Ukrainian legislation. The legislation of Ukraine is being harmonized with EU law in pursuance of the Association Agreement between Ukraine and the EU, and in order to create preconditions for the transition to the next stages of integration, in particular, Ukraine’s membership in the European Union.