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Romanchuk Oksana Iaroslavivna, Competitor of scientific degree, the Faculty of Economic Lviv National Ivan Franko University, Ukraine, E-mail: oksana.romanchuk@hotmail.com
GOVERNMENT REGULATION OF FINANCIAL MARKET UKRAINE IN TERMS OF EUROPEAN INTEGRATION
Abstract: The article specifies the basic concepts and discusses the current state and prospects of development of the Ukraine financial market. The author analysis the structure and features of state market's regulation in the terms of European integration and eliminate the negative effects of the crisis. She argues the need to strengthen the regulatory and supervisory functions of the state to improve the efficiency of the financial market and improve his regulatory framework, taking into account the impact of financial liberalization on the development of the domestic financial market.
Keywords: financial market, government regulation, European integration.
1. Introduction such as A. Baranovsky, B. Born, V. Bazylevych,
Interstate territorial system regulation and super- V. Geyets, G. Dmitrenko, J. Keynes, T. Campbell,
vision, which is more than three centuries of influence on political life, now gives way to another reality, where geographical boundaries of the increasingly blurred logic of regional and global markets. Expansion of cooperation after the entry into force of the Association Agreement between Ukraine and the EU (the Agreement) is also added requirements for financial liberalization - the liberalization of current payments and freedom of movement of capital, the abolition of restrictions on the movement of capital, further liberalization of payments [6]. These conditions significantly transformed the role of the state, new features it varies regulatory policy, formed a kind of symbiosis between state and market regulation.
The aim of the study The article aims to study the characteristics of state regulation of the financial market of Ukraine in terms of European integration.
Analysis of recent research and publications Theoretical and practical aspects of state regulation of the financial market, its economic nature, role, functions and structuring, the effect of financial instruments in the market economy, particularly in terms of macroeconomic instability, investigated a number of domestic and foreign scientists
O. Ivanytska, M. Kondratiev, M. Krupka, S. Lobo-zynska, I. Mykhasyuk, J. Mirkin, V. Mishchenko, A. Mozgovy, S. Naumenkova, N. Stukalo, J. Stieglitz, M. Taylor, B. Unynets-Khodakivska A. Chukh-no, W. Sharp, W. Sheludko, I. Shkolnik and others. Some issues of state regulation of the financial market with European and domestic experience are particularly in [3; 7; 15 and 16].
2. Results
Financial market - this is sphere of market relations, where a supply and demand for all cash resources and movement of capital investments and redistribution of capital between lenders and borrowers through intermediaries happens. In practice - a set of credit institutions (financial and credit institutions) that direct the flow of funds from the owners to the borrowers and vice versa. The process of accumulation and allocation of financial resources, carried out the financial system, directly linked to the functioning of financial markets and of financial institutions.
The financial system of Ukraine and its financial credit institutions (FCI) are still feeling the impact of the negative effects of the financial crisis. That is why for them has the following
main problems: a low level of capitalization, poor quality and lack of variety of financial services, reducing the ratio between long-term deposits and loans, reducing the resource base, increase interest rates on loans, lack of transparency and the system of protection of investors, creditors, FCI other clients, lack of effective and efficient risk
Table 1. - Main indicators of banks
management, improper state regulation, monitoring and support of others.
The banks play today leading role among all FCI in Ukraine. This is confirmed by the dynamics of the main indicators of the banking system of Ukraine, the ratio of assets and the value of loans to GDP (Table 1).
in the financial market of Ukraine
Indicator 01.01.12 01.01.13 01.01.14 01.01.15
GDP, billion UAH 1302.1 1411.2 1454.9 1405.9
Assets of banks, billion UAH 1054.3 1127.2 1278.1 1316.8
The ratio of bank assets to GDP,% 81.0 79.9 87.8 93.7
Assets of non-banking financial - credit institu-
tions, billion UAH 82.4 103.0 120.5 140.8
The ratio of bank assets to GDP,% 6.3 7.3 8.3 10.0
The bank liabilities (deposits), billion UAH. 898.8 957.9 1 085.5 1 168.8
The ratio of bank deposits to GDP ratio,% 69.0 67.9 74.6 83.1
Loans granted by banks, everything, billion UAH 825.3 815.3 911.4 1006.4
The ratio of bank loans to GDP ratio,% 63.4 57.8 62.6 62.6
Weighted average interest rates on loans:
- in national currency,%; 20.1 21.4 17.2 17.1
- in foreign currency,% 7.2 9.9 8.2 9.0
Calculated by the author based [1; 2] As we see, the investment potential of banks is essential, but their credit and investment programs are not financially attractive to businesses. Thus, a significant disadvantage in the domestic banks after the crisis period is that in order to avoid risks and to obtain speculative profits those set high prices for loans, which deprives many undertakings, especially SMEs, access to credit.
Non FCI (NFCI) occupies a small share of the financial market. However, given the actual state of domestic enterprises, much of the need for additional funds, we can say that soon and these FCI come to a new stage of development, creating competition in banking institutions, and for businesses - access to cheap and high-quality financial products and services. Today we can see this dynamic operation NFCI
(Table 2).
Table 2. - The evolution of the non-bank financial institutions
NFCI 01.01.12 01.01.13 01.01.14 01.01.15
Qty % A Qty % A Qty % A Qty % A
1 2 3 4 5 6 7 8 9
Total, incl.: 1979 2.5 2041 3.1 2113 3.5 2087 -1.2
Assets, billion UAH 79.9 14.3 103.0 28.9 120.5 17.0 140.8 16.8
1. Credit institutions 691 -5.3 708 2.5 739 4.3 711 -3.8
Assets, billion UAH 5.4 -3.2 2.7 12.5 2.6 -3.7 2.3 -11.5
2. Insurance companies 442 -3.1 414 - 6.3 407 -1.7 382 -6.1
1 2 3 4 5 6 7 8 9
Assets, billion UAH 48.1 6.4 56.2 16.8 66.4 18.2 70.3 5.9
3. Lombardi 456 7.0 473 3.7 479 1.3 477 -0.4
Assets, billion UAH 1.2 35.5 1.6 33.3 1.5 -6.2 1.7 13.3
4. Financial companies 251 13.2 312 24.3 377 20.8 415 10.1
Assets, billion UAH 19.9 70.0 36.4 82.9 39.8 9.3 51.3 28.9
5. Non-pension funds 96 2.0 94 -2.0 81 -13.8 76 -6.2
Assets, billion UAH 1.4 21.2 1.7 21.4 2.1 23.5 2.5 19.0
6. Other non-bank FCI 49 16.7 61 24.5 85 39.3 92 8.2
Assets, billion UAH 3.9 56.2 4.4 12.8 8.1 84.1 12.7 56.8
The ratio of total assets of non-bank FCI to GDP,% 6.1 7.3 8.3 10.0
It marked:% A - growth rate,%
Calculated by the author based [2]
An analysis of the data table 2 shows that total assets NFCI tends to increase. Thus, during 2012, the assets of these institutions grew by 25.0% and amounted to 7.3% of GDP in Ukraine (total assets in 2011 increased by 19.7% and reached 82.4 billion UAH, representing 6.3% of GDP). Some NKFU slowed asset growth in the 20132014 years - about 17 percent.
However, during 2014 the sector lending NFCI there was some reduction in assets. Thus, the credit union assets decreased by 10.0% (from 2.6 to 2.34 billion UAH, at the beginning and end of the year, respectively), and, conversely, increased: in financial companies by 28.9% (from 39.8 to 51.3 billion UAH, respectively), pawn-
A positive feature of the leading insurance companies present in the financial market of Ukraine is openness and transparency of their activities. This allows them to enter into contracts with insurance companies from abroad, strengthening integration
shops by 12.6% (from 1.5 to 1.7 billion UAH, respectively).
During 2014 increased assets of insurance companies from 66.4 billion UAH to 70.3 billion UAH, and pension funds from 2.1 to 2.469 billion UAH, in accordance. It is seen that insurance companies take a dominant position among NFCI, accumulating more than 53.1% of all assets NFCI. Consequently, they have great potential to promote sustainable development of domestic business by placing insurance reserves in the real economy. However, at present the insurance companies still do not play a significant role in the functioning of the financial system of Ukraine as a result of underdevelopment GDP redistribution (Table 3).
processes, including the EU. Effective functioning of insurance companies in Ukraine, their successful and dynamic development will depend on expanding the list of insurance services, improving the taxation of insurance, increase their competitiveness, improve
Table 3. - Some indicators of insurance companies for the 2011-2014 years
Indicator 01.01.12 01.01.13 01.01.14 01.01.15
Gross premiums, billion UAH 22.7 21.5 28.7 26.8
The share of gross premiums in GDP,% 1.7 1.5 2.0 1.9
Insurance reserves, billion UAH 11.2 12.6 14.4 15.8
Calculated by the author based [2]
requirements of insurance companies Ukraine's further integration into international structures.
However, the financial market in Ukraine is still scattered and not segmented, he has no clear specialization. Financial products and activities of Ukrainian financial institutions have a simplified structure. Therefore, for the further development of the financial market and reaching the European standards need to efficiently develop functional authorities responsible for specific segments and sectors of the financial market, as this will facilitate the necessary regulation of financial institutions, targeted actions for the development of appropriate sectors: banks, insurance and investment companies, pension institutions and so on.
The peculiarity of the modern state regulation of the financial market of Ukraine is that it is carried out in conditions relating to the signing and entry into force of the Agreement. According to Article 144 of Ukraine confirms the absence of restrictions on payments for current account balance with the EU.
According to the authors [8, 6] provisions for unconditional and full liberalization of cross-border capital flows between the EU and Ukraine, which have been incorporated in the design of the Association Agreement reflects outdated views on capital mobility as a factor of economic growth, and their implementation can have negative consequences for the economy of Ukraine. These include [8, 11]:
- Narrowing of the financial framework for productive investments in the economy of Ukraine due to the outflow of national savings in financial markets in the EU;
- Reduction of the tax base and increase the budget deficit caused by increased outflow of domestic capital abroad and slowdown of economic activity;
- Growth in demand for foreign currency resulting from the conversion of national savings into foreign currency, their transfer to European banks or direct to purchase securities of issuers from the EU.
Experts estimate [4, 60] resulting in reduced probability Agreement introduction of restrictions
on current payments for businesses and households. International commitments Ukraine is not changing for the public sector, as the country has assumed the relevant obligations under the agreement with the IMF and the agreement on partnership and cooperation with the EU. However, the agreement with the EU provides more effective control mechanism for their implementation.
According to the Ukraine undertakes to ensure the free movement of capital in specific areas. In particular, they eliminate restrictions on foreign direct investment (FDI), commercial loans, portfolio investments and financial loans and credits. The Parties undertake not to introduce new restrictions on the movement of capital and current payments and not to existing restrictions more stringent.
Ukraine pledged to take measures to further liberalize the movement of capital to the level of the EU. This will be a prerequisite for the formation of a single EU market in financial services.
Exploring the state financial policy in the postcrisis conditions ofV. Kornivska noted [11, 76] that financial market liberalization in practice means the elimination of the state and its regulatory effect on the system of financial relationships. However, in terms of instability takes effect principle lender of last resort and implemented state support systemic financial institutions. The author concludes that government regulation of financial markets should be mandatory and comprehensive: access to post-crisis trajectory of development depends on the resolution of how the state will influence to overcome its inefficiency and reformats it as on the development of the real sector.
An important role in state regulation of financial market regulation in Ukraine play, which by their nature is compulsory, subordinated and is based on the possibility of coercion.
State regulation of the financial market in Ukraine by three branches of government: legislative, executive and judicial. Its elements are: laws and regulations; governments, providing both di-
rect and indirect intervention in the financial market. Financial market Ukraine is constantly the focus of the Verkhovna Rada of Ukraine (Parliament), the President of Ukraine, the Cabinet of Ministers and other authorities.
In Ukraine, government regulation of financial markets is based on sectoral model. That is operates a three-tier system: National Bank provides banking regulation; securities market regulator acts The National Commission on Securities and Stock Market (NC-SSM); insurance market, the market of credit unions and finance companies regulating the National Commission for Public Regulation of Financial Services Markets (NCPRFSM). In this first regulator independent of government and economically independent and the other two are coordinated by the Government and are on budget financing. NCSSM is a national collegiate body subordinate to the President of Ukraine and accountable to Parliament. State regulation of financial services is subject to the Law "On financial services and state regulation of financial services".
CMU provides implementation of financial, pricing, investment and taxation policy. The central executive bodies, whose activities are directed and coordinated Cabinet is State Service for Financial Monitoring of Ukraine (SSFMU). It was formed to implement the state policy in the sphere of combating legalization (laundering) of proceeds from crime or terrorist financing. Note that the NBU, NCSSM, NCPRFSM and SSFMU have the right to access to information databases maintained to regulate financial markets.
Based on currently applicable legislation and regulations can be argued that government regulation of the financial market of Ukraine is still not effective. Thus, in order to regulate the functioning of the stock market and corporate governance in Ukraine during 2009-2013 Parliament passed 20 bills. However, in 2014 Parliament was not taken any bill in the stock market [2, 72].
In 2014, NCSSM, as a state regulator, developed and registered with the Ministry ofJustice of Ukraine
119 regulatory legal acts. A substantial portion of such acts was developed in connection with the Law of Ukraine "On the Depository System of Ukraine" and "On Collective Investment Institutions." As a result of revision of regulatory acts in 2014, the Commission has prepared 284 conclusions of legal expertise and 143 anti-discrimination conclusions of the examination, which is a total of 427 findings. Also during 2014 analyzes over 200 regulations on securities regulation to bring them into line with current legislation.
In 2015 the NBU approved on June, 18 2015 by the Board of the National Bank of Ukraine (the NBU Board Resolution No. 391 ofJune 18, 2015) program of financial sector of Ukraine for 2020, prepared by the financial market regulators and relevant organizations. A comprehensive program aimed at ensuring sustainable development, including through the achievement level and EU requirements in this area [5]. Developed reforms based on liberalization of the financial market and promoting equal competition, overcoming the crisis and consolidating markets. In addition, it is based on the independence of regulators and supervision based on risk assessment, as well as increasing transparency and disclosure standards as regulators and market participants to effectively protect the rights of creditors, consumers, investors and the market.
However, the National Bank, as the regulator of the financial market, becomes more closed to constructive public dialogue that prevents the implementation of European principles of banking supervision and can turn it into a tool of punishment and reprisals against the Ukrainian banks. Unrestricted right NBU blame any bank in violation of the law (NBU decree of 2015.10.11 number 778) will exert a devastating impact on the banking system and will prevent foreign investors in Ukraine [12].
In reforming the financial market of Ukraine should be aware that regulatory legal acts should be (as in small businesses) reasonable compromise between national goals and cost to achieve them. For
example, according to the CMU Resolution number 1151 of 2015.12.16, on March 15, 2016 adoption of regulations that affect small business would be impossible without first calculating the cost of meeting the requirements of these regulations for business. Authorities carrying out regulatory functions must learn to apply the method (M-Test) calculate the cost of regulation, jointly developed by the State Regulatory Service and the Commercial Law Center [10].
The current state of Ukraine's financial market caused by the fact that the decline in industrial production and capital outflows due to the deployment of military operations in eastern Ukraine led to a balance of payments crisis. Political and economic crisis provoked a growth of devaluation expectations and the crisis of confidence in the banking system. Consequently, the hryvnia (UAH) fell sharply, and the banking system at the end of August 2015 has lost more than 32% of deposits in the national currency and more than 55% of foreign currency deposits [13, 5].
Policies that respect the NBU sells currency briefly can be expressed as: "Let all come in, but none does not out come ". Thus, currency restrictions, which were introduced in September 2014, the cash and the interbank market, aimed to cut speculative demand for foreign currency and reduce the pressure on the hryvnia. Under the restrictions, the regulator allowed the day to buy Ukrainian banks exchange no more than 3 thousand UAH.
Since March 5, 2016 (NBU Resolution No. 140 "On settlement of the situation in the money and foreign exchange markets of Ukraine" dated 2016.03.03), The National Bank continued the gradual liberalization of administrative restrictions on the foreign exchange market, decided to increase the limit on the issuance day foreign currency current accounts 2.5 times - the equivalent of 20 thousand to 50 thousand UAH, and the daily limit for issuing the national currency from 300 thousand to 500 thousand. In addition, the NBU increased limit sales of currency from 3 thousand to 6 thousand per day [9].
However, this is only the first steps toward financial liberalization, which should continue considering internal and external factors and national interests.
Specialists of economic strategy and Easy Business in early 2016 suggested [14] measures aimed at liberalizing the currency, which will achieve overall economic effect amounting to 13-14 billion UAH. Among them, in particular, filing documents electronically, using invoice verification operations with exports of services, the abolition of the act of pricing expertise, the ability to transfer currency between bank accounts, cancel reservation of funds for four days when buying foreign currency to pay for imports.
3. Conclusions
The development of Ukrainian financial market and attract foreign capital should not occur spontaneously, but under state control to the arrival of foreign capital is not contrary to the national interest and contributed to economic growth.
Ukraine has formed a system of state regulation of financial market and distributed by the powers of regulators to regulate, supervise and control its activities. However, regulation of the financial sector at the present stage is characterized by ineffective behind the current situation, trends and requirements of the market, conditions of European integration.
Financial market today Ukraine is still not mature and developed, it has not established appropriate conditions for the establishment of a single regulatory body. So sectoral model of regulation of the financial market, which operates in Ukraine, is the best in the current environment and does not require its replacement model of mega-regulator.
A key problem in the regulation of financial markets is poor coordination between financial regulators, leading to inconsistent adoption of regulatory legal acts or conduct of individual measures, lack of supervision during interaction in terms of systemic financial crises incomplete information exchange.
Given the integration processes should improve the legal framework regulating the financial market,
increase liability for violation of financial laws, lobbying for the interests of others, delays and opposition to the introduction of new financial regulations.
Further research is promising financial innovation and risks of new financial instruments that
penetrate the domestic market of Ukraine due to the deepening of European integration processes.
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