TWINNINGINTERIM QUARTERLY REPORT
TWINNINGINTERIM QUARTERLY REPORT number: 4
EUROPEAN COMMISSION
TWINNING PROJECTS
INTERIM QUARTERLY REPORT
Project Title:
Development and consolidation of the National Commission for Financial Markets’ operational and institutional capacities in the field of prudential regulation and supervision.
Partners:The National Commission for Financial Markets of theRepublic of Moldova (CNPF)
The Polish Financial Supervision Authority(KNF)
Date: September2016
Twinning Contract number: Moldova- ENI/2015/363-321
General instructions
1.Overview
The Interim Quarterly Report/Final Report for the project comprises the following parts:
Section 1Basic data on the project
Section 2Content: progress achieved in the implementation of the Twinning project during the reporting period and schedule for the remaining period
Section 3Expenditure: actual expenditure in relation to budgeted expenditure
2.General guidance
- Throughout the entire Twinning project, at three-monthly intervals starting with the date of notification of endorsement / signature, the Project leaders may prepare Interim Quarterly Reports/Final Reports.
- Interim Quarterly Reports/Final Reports cover both substance and Finances.
- The deadline for submission of the Interim Quarterly Reports/Final Reports cannot be altered – The first interim quarterly report will most often refer to less than three months’ actual project implementation, since the arrival of the RTA in the BC and the beginning of the work schedule rarely coincide with the date of notification.
- The MS Project Leader in co-operation with the BC Project Leader will submit, within the month following each quarter, the interim quarterly reports to the concerned authority (see 6.4 of the Twinning manual).
- One copy of the Report must be sent at the same moment to the relevant Twinning Team in the Commission Headquarters
- The Report must be submitted in one of the following three languages: English, French and/or German.
3.Notice
- The approval of the Report by the relevant authorities is without prejudice to the Commission's right to suspend the activities of a project, terminate an agreement or take any other appropriate step should subsequent verifications reveal problems or significant divergences from the work plan, the budget or the conditions of the Twinning Contract as approved.
- The views expressed in this report do not necessarily reflect the views of the European Commission
Twinning Contract number: Moldova -ENI/2015/363-321
Section 1: Project data
Twinning Contract Number / ENI/2015/363-321Project Title: / Development and consolidation of the National Commission for Financial Markets’ operational and institutional capacities in the field of prudential regulation and supervision.
Twinning Partners (MS and BC) / MS: Polish Financial Supervision Authority (KNF)
BC: National Commission for Financial Markets of the Republic of Moldova (NCFM)
Report Number: / 4
Period covered by the report: / 12May 2016 – 11 August 2016
Duration of the project: / 12August 2015 – 11November2017
Rapporteur: / Prepared by:
Joanna Lipowczan, Project Manager from the Polish Financial Supervision Authority
GrzegorzWąsik, Resident Twinning Adviser from the Polish Financial Supervision Authority
Approved by:
Damian Jaworski, Project Leader from the Polish Financial Supervision Authority
Iurie Filip, Project Leader from the NationalCommission for Financial Markets of the Republic of Moldova
MS signature:
MS signature and date (i.e. MS Project Leader, Mr. Damian Jaworski): ……………………………
MS signature and date (i.e. MS Project Manager, Mrs. Joanna Lipowczan): ......
RTA signature and date (i.e. MS RTA, Mr. GrzegorzWąsik): ......
BC signature:
BC signature and date (i.e. BC Project Leader, Mr. Iurie Filip): ……......
RTA counterpart and date (i.e. BC RTA counterpart, Mrs. Veronica Cuhal): ......
Twinning Contract number: Moldova -ENI/2015/363-321
Section 2: Content
This section describes the activities of the project. It is divided in five sections.
2A – BACKGROUND
2B – ACHIEVEMENT OF MANDATORY RESULTS
2C – ACTIVITIES IN THE REPORTING PERIOD
2D – TIMING AND DELAYS
2E – ASSESSMENT
1
Twinning Contract number: Moldova -ENI/2015/363-321
2A – BACKGROUND
This report covers activities carried out in the fourth quarter of the project, in the period of 12 May 2016 until 11 August 2016. This chapter comprises political developments directly linked to the subject of the project, the state of the achievement of project objectives and the state of project assumptions.
Overall objectives
Overall Objective and indicators of achievement (as in Logframe) / State of achievement/ problems encounteredOverall Objective:
Development and implementation of the Risk Based Supervision System for the non-banking financial market participants, including capital market, insurance, pension funds and micro-finance based on the forecasting and evaluation of the risks and preventable consequences of some unfavourable events.
Alignment with EUacquis and implementation of best practices of EU in regard to non-banking financial market supervision.
Development and implementation of the Risk Based Supervision System for the non-banking financial market participants, including capital market, insurance, pension funds and micro-finance based on the forecasting and evaluation of the risks and preventable consequences of some unfavourable events accomplished.
A better methodology and standards of supervision of the non-banking financial market including capital market, insurance, pension funds and micro-finance in Moldova will allow a more efficient and secure application of supervisory system based on the forecasting and evaluation of risks. A well-functioning non-banking financial market in Moldova will contribute to economic growth, poverty reduction and employment as well as overall security and stability of non-banking financial market participants. / All activities performed in the fourth project quarter were successfully implemented.
Within the reporting period the following project activities were implemented in line with the Twinning Work Plan and updated schedule, including:
experts’ mission focused on the review of the secondary legislation on capital markets with written recommendations from the perspective of the MiFID requirements and regulations within the scope of investment firms (i.e. Activity No 2.1);
experts’ mission devoted to the review of the secondary legislation on capital markets with written recommendations from the perspective of the MiFID, CSDR, EMIR and other post – trading requirements and regulations within the scope of capital market infrastructure (i.e. Activity No 2.2);
two experts’ missions aimed at the review of the secondary legislation with written recommendations regarding capital requirements for investment firms and drafting the manual for off-site supervision regarding investment firms (i.e. Activity No 2.3);
expert’s mission focused on the review of the secondary legislation on capital markets with written recommendations from the perspective of the UCITS Directive (i.e. Activity No 2.5);
expert’s mission dedicated to the review of the secondary legislation on capital markets against relevant provisions of Directive on Alternative Investment Fund Managers (i.e. Activity No 2.6);
experts’ mission focused on the review of the secondary legislation on capital markets in the field of market abuse and trading surveillance (i.e. Activity No 2.7);
experts’ mission aimed at the review of the secondary legislation on capital markets against relevant provision of the Transparency Directive (i.e. Activity No 2.8);
experts’ mission dedicated to the review of the secondary legislation on capital markets against relevant provision of the Takeover Bids Directive (i.e. Activity No 2.9);
experts’ mission with the workshop and consultations on capital adequacy of investment firms (i.e. Activity No 2.13);
experts’ mission concerning the review of requirements regarding both primary and secondary regulations of the MTF as a separate and specific type of trading venue (i.e. Activity No 2.14);
experts’ mission dedicated to principles applicable on all parties related to investment funds (UCITS) (i.e. Activity No 2.16).
During the reporting period draft regulations and by-laws aimed to enforce the capital market legislation have been consulted with Polish experts who provided comments and suggestions on the following documents:
1. Procedure on acquisition by a joint stock company of shares issued by it.
2. Draft amendments to the Capital Market Law aimed to reform the system of independent registrars and to strengthen the evidence of securities ownership on the securities market of Moldova by creating the integrated informational system containing the back-up of securities holders’ registers. The draft law has been approved by the Council of Administration and shall be submitted to the Government for examination and approval.
3. Guidelines on reporting requirements for entities licensed and authorized on the capital market.
4. Draft amendments to many legislative acts aimed to conform the existing legal framework to the provisions of the new Capital Market Law and amendments to the Criminal Code and Administrative Code.
Polish experts assisted NCFM experts in providing comments to the draft Law on the Central Securities Depositary developed by the NBM jointly with IMF experts and new legislation on financial institutions aimed to transpose the provisions of CRD IV Directive related to capital requirements and risk based supervision of investment firms.
Project purpose
Project purpose and indicators of achievement (as in Logframe) / State of achievement/ problems encounteredProject purpose:
Development and maintenance of an appropriate and effective regulatory and supervisory framework in accordance with the EU legislation and best practices to enable prudential regulation and supervision on the non-banking financial market.
Strengthening operational and institutional capacities of the NCFMaccomplished.
Development and maintenance of an appropriate and effective regulatory and supervisory framework in accordance with the EU legislation and best practices to enable prudential regulation and supervision in the field of:
- capital market and investment fundssector;
- insurance companies sector;
- savings and credit associations and pension funds sector.
During the fourth quarterof the projectactivities scheduled within the Component 2 (Capital market and investment funds) were continued.
The review of the secondary legislation on capital markets against relevant provisions of MiFID, CSDR, EMIR, CRD IV, CRR, MAD, UCITS Directive, AIFM Directive, Transparency Directive and TOD was carried out. In a consequence nineReview reports with recommendations, gap analyses and guidelines were developed.
Moreover, several presentations covering relevant legal framework and supervisory practice on trading surveillance, ongoing and periodic issuers’ reports,mechanisms of reporting approval andcentral securities depository’s auxiliary serviceswere presented.
Furthermore the Draft manual for the off-site supervision regarding investment firms was elaborated.
The workshop with consultations on capital adequacy of investment firms concerning general regulation forthe capital adequacy of investment firms; ongoing supervision of the financial and capital adequacy data; methods of the supervisory assessment of the capital adequacy of investment firms; the liquidity risk and consolidated supervision, was provided.The Polish experts also prepared working papers regarding stress-testing and case study for ongoing supervision.
As regards the implementation of the Multilateral Trading Facility a workshop focused on practical aspects related to implementation of the Multilateral Trading Facility took place, and accordinglywritten recommendations on regulations regarding requirements for the Multilateral Trading Facility were drawn up.
With respect to the UCITS’ matters aworkshop was organized on the activity of the investment funds management company (including: functions, legal structure, own funds requirements, operating conditions and authorization process) and legal construction of the UCITS, activities of the UCITS, structures of the UCITS, information provided to investors and authorization of UCITS. Moreover,written guidelines on principles applicable to all parties related to the UCITS type of investment funds were developed.
The input provided by the MS experts shall contribute to the establishment of a sound base to facilitate further efforts of the NCFM for development and maintenance of an appropriate and effective regulatory and supervisory framework in accordance with the EU legislation and best practices.
Thus, the NCFM capacities to regulate the non-banking financial market and strengthen its supervision functions in line with the EU acquis and best practices have started to increase.
Policy Developments(NCFM part)
Following the recommendations of the FSAP mission regarding the necessity to improve the safety, efficiency and soundness of the securities settlement and registry infrastructure in Moldova, the NCFM and the NBM initiated reforms in order to address current shortcomings, in particular related to IT infrastructure, gaps in the legal framework and the fragmentation of registrar functions and to enhance the safety and efficiency of the financial infrastructure in Moldova, which is a basic condition for market development and overall soundness of the financial system. The IMF and World Bank have recommended the creation of a single CSD which would provide settlement and depository functions for corporate, government and NBM securities originating from MSE and OTC market.
The NBM jointly with IMF experts have developed the draft Law on the single Central Securities Depositary, on which the NCFM with the support of Polish experts has been submitted its comments and suggestions. The draft law has been adopted at the Parliamentary session of 29.07.2016 in the first reading.
The NCFM has developed and consulted with Polish experts the technical concept for the creation of the State Registry of Securities holders and the draft Law amending the Capital Market Law in order to reform the system of independent registrars and to strengthen the evidence of securities ownership on the securities market of Moldova by creating the State Register integrated informational system containing the back-up of securities holders’ registers. The draft law has been approved by the Council of Administration and shall be submitted to the Government for examination and approval.
Following the commitments from the RM-EU Association Agreement the NBM has developed the new legislation on financial institutions aimed to transpose the provisions of CRD IV Directive related to capital requirements and risk based supervision of financial institutions. Having the support of Polish experts, the NCFM has provided to the NBM its proposals related to capital requirements for investment firms and prudential requirements in the context of risk based supervision.
Following the recommendation provided by Polish experts in their reports, the NCFM works at developing amendments to the Capital Market Law on the activity of the investment funds, management company and legal construction of the UCITS, their structureand authorization, as well as information provided to investors of UCITS.
Furthermore, based on the Polish experts proposals and comments received during public consultations, the NCFM is finishing the draft Regulation on market abuse.
Project Assumptions
In the reporting quarter the activities within the Twinning Project have assisted the NCFM in fulfilling the commitments of the Republic of Moldova stipulated in the former Partnership and Cooperation Agreement between the European Union and the Republic of Moldova, repealed and replaced by the Association Agreementbetween the European Union and the European Atomic Energy Community and their Member States, of the one part, and the Republic of Moldova, which is currentlyin force.
In particular, the Twinning Project has as main objective to contribute to the process of transition of the NCFM from compliance-based supervision to the establishment by the NCFM of the risk-based supervision for the three sectors of the non-banking financial market. The experts’ missions implemented in the fourth reporting period, focused on the review of certain aspects of the secondary legislation on capital markets, capital adequacy of investment firms as well as requirements and principles of the MTF and UCITS, included recommendations and good practicesfrom the perspective of conducting the risk-based supervision.
The activities undertaken will be subsequently continued and developed within the relevant project activities in line with the agreed Twinning Contract Work Plan.
2B - ACHIEVEMENT OF MANDATORY RESULTS
Results and indicators of achievement (as in Logframe) / State of achievement/ problems encounteredComponent 1 – Strengthening operational and institutional capacities of the NCFM.
Indicator of achievement (copied from logframe)
- Strengthening operational and institutional capacities of the NCFM accomplished.
- Internal procedures/manuals/rules developed in line with the EU best practice.
Component 2 – Capital Market and Investment Funds.
Indicator of achievement (copied from logframe)
- Strengthening operational and institutional capacities of NCFM to supervise and regulate capital market and investment funds sector accomplished.
Activity 2.1 Review of secondary legislation on capital markets (part 1).
Benchmarks:
Review of the secondary legislation on capital markets with written recommendations from the perspective of MiFID requirements and regulations within the scope of investment firms was performed.
State of achievement:
Activity successfully completed and the result achieved.
The purpose of the Activity 2.1 was to review the secondary legislation on capital markets and issue written recommendations from the perspective of the MiFID requirements and regulations regarding investment firms.
Based on the performed analysis, STEs stated that the Moldovan legislation complies with the legislation regarding the MiFID Directive and MiFID Implementing Directive in several regulatory areas. However, due tothe lack of changes of the respective Moldovan provisions, STEsunderlined that recommendations set out in the “Gap analysis with recommendation” prepared by them within the Activity 2.11, remain valid particularly with regard to the authorisation process of the investment firms, conduct of business rules, and technical and organisational requirements.
Therefore, during the Activity 2.1, based on expectations and needs expressed by the NCFM staff, STEs complimented previous recommendations by providing additional information and comments regarding the following:
(a)acquisition and increase in holdings in the investment firms;
(b)further recommendation regarding certain aspects of provision of investment services, particularly on the OTC markets;