Updated EFF program with IMF supplemented with three structural benchmarks about securities commission, NEURC and NBU

The International Monetary Fund (IMF) published an updated Memorandum of Economic and Financial Policies following the fifth review of the Extended Fund Financing program (EFF) with Ukraine, which added three new structural benchmarks with implementation dates from the end of January to the end of October next year.

As noted in the fund’s materials, by the end of January it is necessary to prepare a comprehensive operational strategy for the National Securities and Stock Market Commission (NSSMC) with an independent assessment of the work of the head and members of the commission.

"The authorities … are also proposing to prepare a strategy for the NSSMC by end-January 2025; prepare and submit to parliament a draft law on financial sector critical third-party risk by end-May 2025; and complete and publish a third-party external assessment of the National Energy and Utilities Regulatory Commission (NEURC) by end-October 2025," the report reads.

"The National Securities and Stock Market Commission is taking immediate steps to implement key IOSCO principles and capital flow management measures. To front-load critical reforms, the NSSMC will propose a reorganizational and operational strategy in consultation with IFIs; update and implement its Employees Code of Ethics in line with international best practice in consultation with IFIs; initiate an advance independent fit and proper review of NSSMC Chair and Commissioners in accordance with Article 12 of the above law and disclosures made in line with the Code of Ethics and in consultation with IFIs; and in consultation with the NBU, take steps by end-December 2024 to ensure the effectiveness of capital flow management measures, including through regulatory harmonization and aligning capital flow restrictions for securities operations with those applied to bank operations," according to the document.

"The NBU is taking steps to mitigate growing critical third-party risk in banks, nonbank financial institutions, and payments service providers. Specifically, the NBU will prepare a concept note on oversight of critical third-party risk and digital operational resilience by end-February 2025; and develop and submit a draft law to parliament. It will be prepared in consultation with IFIs and will include measures for detection, containment, and mitigation of critical third-party risk under both going- and gone concern conditions. Entities identified as critical third parties will be subject to NBU’s fit and proper rules," the report states.

"The authorities will develop an accountability framework for NEURC in the law, which would allow for regular external assessments of NEURC’s independence and governance frameworks by the Energy Community Secretariat upon request every 2–3 years. The first such external assessment of NEURC will be finalized and published by October-2025. This will help to further the independence and accountability of NEURC. Finally, the selection process for the remaining NEURC Commissioner vacancy should be concluded in a transparent and merit-based manner consistent with the law," it says.

The remaining benchmarks have been left unchanged, in particular, the term of six of them expires at the end of December, of which Ukraine has already fulfilled two: it formed a supervisory board of Ukrenergo with independent members and adopted a law to reform the Accounting Chamber.

By the end of the year, it is also necessary to prepare the foundations for bank recovery and introduce a methodology for assessing risks in the banking sector. As NBU Governor Andriy Pyshnyy reported on Saturday night, the implementation of these benchmarks is being carried out in accordance with the schedule, and the deadlines will not be violated.

At the same time, the situation with two more benchmarks with a deadline until the end of the year looks worse, as they require the adoption of laws in the Verkhovna Rada: amendments to the Criminal Procedure Code to provide the Specialized Anti-Corruption Prosecutor's Office (SAPO) with the request of extradition and the cancellation of the so-called "Lozovy amendments," as well as the creation of a new supreme administrative court to replace the District Administrative Court of Kyiv.