Today, on March 2, 2017, E-FINANCE.COM.UA interviewed Scott Calhoun, Team Leader of EU-FINSTAR Project financed by EU Delegation to Ukraine (eeas.europa.eu/delegations/ukraine_en) and implemented by Human Dynamics (humandynamics.org).
EF: Scott, please tell us what your project is engaged in. What areas do you cover?
Scott Calhoun: EU-FINSTAR is an EU-financed technical assistance project providing technical assistance to the Government of Ukraine and State institutions leading reforms in Ukraine’s financial sector. We support the Ministry of Finance, the National Bank of Ukraine, the National Commission for Securities and Stock Markets, and the National Commission for the Regulation of the Financial Services Market to introduce reforms that will improve financial transparency into Ukraine’s private sector, enhance financial stability, and strengthen the financial supervisors’ capacity to effectively supervise Ukraine’s financial institutions and markets in line with international and European practices.
Our work is helping the Ministry and the three financial regulators fill crucial gaps in policies, the legal framework and supervision and transparency practices for financial firms and private sector entities that are in use across Europe and around the world. And, when implemented the will allow Ukraine’s financial intermediaries and markets to be comparable with cross-border markets and make Ukraine more attractive for investments that are needed for sustainable economic growth and for increased cross-border trade and economic integration with its European neighbors. None of the things we are helping the project’s four beneficiaries to implement are new or novel. In fact, they are the basics for a modern, competitive financial services sector and a transparent private sector.
Regarding the technical assistance we are providing, we are helping the beneficiaries to:
- Implement internationally-recognized financial reporting data taxonomies which enable reliable comparisons (i.e. domestic and cross-border) and increase financial transparency into financial firms and other commercial enterprises using public markets to finance their operations;
- Enhance the National Bank of Ukraine’s framework for monetary and financial statistics to approximate to the framework requirements for EU central banks to better support NBU policymaking decision;
- Implement Consolidated Supervision practices for financial firms which draw from best European Union practices and that implement the international standards for global financial supervisors;
- Assist the National Bank of Ukraine’s development of its macro-prudential supervision of the financial markets to manage, protect, and maintain financial stability;.
- Support the National Bank of Ukraine as it prepares to gradually liberalize capital and currency controls over time for the eventual free flow of capital;
- Support the Ministry of Finance in introducing legislative changes that will install international standards for statutory audits and a framework for the internationally required public oversight body to effectively regulate the audit profession;
- Support for the Ministry of Finance’s amendments to the Accounting Law that will bring it into alignment with IFRS and the EU 2013 Accounting Directive;
- Support the Ukrainian securities market regulator as they introduce a supervisory framework for credit rating agencies operating in Ukraine; and
- Assist the National Bank of Ukraine with implementing an international methodology for evaluating a bank’s capitalization of its risks.
Together, these areas where the project’s experts are working help to implement the Government of Ukraine’s 2020 Strategy for reforming the financial sector and assisting the Government and the State bodies in implementing parts of the Association Agreement with the European Union.
EF: Your project indeed covers a wide range of issues. Is it difficult to manage a project of this scope? What difficulties do you face on a daily basis?
Scott Calhoun: The project does have a number of tasks to perform and we are working with different beneficiaries which may seem challenging on the surface. However, through the good fortune we are working with competent beneficiaries that are dedicated to introducing reforms which is a great advantage that makes the task more manageable. The other good fortune comes from working with a talented and dedicated group of professionals. I include in that group my colleagues from the Human Dynamics which is implementing the project, but also the committed and dedicated professionals at the European Union Delegation to Ukraine. Our donor and our managers at the Delegation have been extremely helpful and supportive to ensure we are achieving results. So together, good beneficiaries, talented colleagues and a supportive donor make the task much easier than you might think and it definitely makes the work enjoyable and rewarding.
EF: What is your forecast on when Ukraine would be able to enjoy strong and efficient financial markets.
Scott Calhoun: First, it is important to note that I do not speak for the European Union and the views I express are my own.
To begin, it is impressive how much has been accomplished in a short two year timeframe. We are all familiar with the changes introduced to reform and stabilize Ukraine’s banking sector. In two painful years for customers, depositors, and citizens; the National Bank of Ukraine introduced sweeping changes to correct more than 20 years of neglect and abuse in the banking sector. It appears the worst is behind us for the banking sector, although there is considerable work that needs to be done to have the surviving banks return to growth and to rebuild the trust of depositors and the public in the banks and those who regulate and supervise them. The National Bank of Ukraine was able to achieve these reforms because they have the authority, powers, and financial and operating independence to do what was necessary to cleanse and stabilize the sector, which was coupled with the will to make hard decisions and implement the changes.
We have also seen reforms introduced by the other two financial sector regulators. I want to emphasize that I also find their reforms impressive and being led by a group of dedicated reformers. I come to this view because these two regulators do not possess important preconditions that are present for the National Bank of Ukraine. The National Securities and Stock Markets Commission and the National Commission for the State Regulation of the Financial Services Market are pursuing their reforms without having been granted the legislative authorities, powers, resources and the financial and operational independence required to meet the international principles for a strong and independent financial supervisor. And the absence of a full suite of authorities, powers, resources and independence needed for the supervisors of Ukraine’s non-banking sector which stems from long-overdue action by Verkhovna Rada to legislate these changes which have been pending since 2015. We can all rationalize or speculate as to “why” there has been inaction on enacting the legislative changes, but the bottom line is the non-bank regulators need to receive the enhanced powers, resources and independence.
So when I step back and look at the financial services market I see a banking sector that is stabilized. Unfortunately, I do not think this is true for the other segments of the financial services market and I think there is considerable clean-up that needs to be done in the non-banking sub-sectors before the complete financial sector is poised for a future with new growth opportunities. This is also important for other parts of the Government’s reform agenda as things like pension reform are being contemplated.
Your question was linked to when I foresee a future with strong and efficient financial intermediation. And my answer is I do not know. I do not know because I am uncertain when the reforms to empower the regulators for the non-bank sector with the needed authorities, powers, resources and operational independence will be granted. Once they have these things and the necessary staffing in place; a group of committed reformers can achieve the results relatively quickly – similar to what we saw for banks. On the other hand if these legislative reforms come slowly, or never, that presents an entirely different scenario and timeline which unfortunately can include an answer of “never”.
But I do want to end this on a positive note. I am impressed by the leaders at our project beneficiaries, and I have found they are dedicated and talented individuals committed to achieving reforms that are needed to strengthen and modernize Ukraine’s financial system. I am hopeful there will be legislative reforms which provide the non-bank regulators with the powers and tools they need, and we can continue providing the support and assistance to the Beneficiaries to transform and modernize Ukraine’s financial sector and prepare it for integration with cross-border markets. And, I hope to be part of that because it has been both personally and professionally a pleasure working with our beneficiaries in supporting their work to introduce reforms.
EF: Scott, thank you very much for your time and all the great work you and your international team are doing in Ukraine!
Scott: Thank you.