TWINNING INTERIM QUARTERLY REPORT
TWINNING INTERIM QUARTERLY REPORT number: 1
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: November 2015
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: / 1
Period covered by the report: / 12August 2015 – 11 November 2015
Duration of the project: / 12August 2015 - 11November2017
Rapporteur: / Prepared by:
Joanna Lipowczan, Project Manager from the Polish Financial Supervision Authority
Grzegorz Wąsik, 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
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 the activities that have been carried out in the first quarter of the project, in the period of 12 August until 11 November 2015. 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 EU acquis 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 the 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. / At this stage the information on the progress in achieving the overall objective cannot be provided due to the inception period of the project implementation.
The project development is in the initial stage.
Within the reporting quarter the first project activities were implemented in line with the Twinning Work Plan, including:
-kick-off meeting aimed at promotion of the project and increasing the public awareness about project objectives, its purposes and implementation plan (i.e. Activity no 0.1);
-experts’ mission concerningdevelopment of conceptual framework of Risk Based Supervision in thenon-banking financial markets (i.e. Activity no 1.1);
-experts’ mission concerning strengthening the capacities against market abuse, manipulation and insider transactions (i.e. Activity no 1.6).
The above activities state a base for further project development.
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 funds sector;
- insurance companies sector;
- savings and credit associations and pension funds sector.
Review report with recommendations from the perspective of establishing risk-based supervision for insurance market was developed and provided to the NCFM.
Furthermore, in line with the project assumptions, the review of the NCFM’s capacity in the field of combating market abuse in the capital market (market manipulation and insider trading) and workshops for the NCFM and market participants were performed.
The input provided by the MS expertsshall contribute to establish a sound base to facilitate further efforts for development and maintenance of an appropriate and effective regulatory and supervisory framework in accordance with the EU legislation and best practices.
Thus, theNCFMcapacities to regulate the non-banking financial market and strengthen its supervision functions in line with the EU acquis and best practiceshave started to increase .
Policy Developments
Speaking about the legal framework in which the Twinning project started to be implemented, we mention that in the period September – November 2015 the NCFM made significant efforts to promote in the Parliament the draft laws regulating the activity of insurance undertakings and pension funds. These draft laws will be examined by Polish experts during the future missions in order to provide their comments and amendments to the existing framework based on Polish experience in the field.
Having the scope of improving the insurance legislation and accomplishing the Action Plan elaborated by the Council of Bureaux from Brussels, the NCFM has promoted the draft law amending the Law on Insurance no. 407-XVI of 21.12.2006 and the draft law amending the Law on compulsory motor insurance of civil liability no. 414-XVI of 22.12.2006.
The amendments to the law on insurance refer to:
1.1. strengthening the financial stability of insurers, by applying a transparent and complete regulation of the measures used for improving the financial situation and for financial remediation of insurers;
1.2. diversification of the sanctions and penalties applied to insurers for violations and deficiencies identified that shall lea to the consolidation of the supervisory capacity of the financial market authority.
According to the draft law, the strengthening of financial capacity of insurers (reinsurers) will be performed by early intervention of NCFM by applying:
- financial recovery plan containing effective measures to improve the financial situation of insurers (reinsurers) and financial remediation.
The draft law is under examination in the Parliament of the Republic of Moldova.
The amendments to the Law on MTPL insurance provides a new approach for:
- determining the insurance premiums for compulsory motor liability insurance, based on the partial liberalization of their calculation. Thus, it is proposed that insurance premiums be set by insurers based on their own statistics, taking into account country-wide unique methodology approved by the supervisoryauthority;
- regulating the way of establishing the real damage incurred as a result of motor vehicle accidents. This way is based on the assessment of the damage value, in case of the replacement of spare parts using the actual prices charged by specialized units;
- regulating the external financial guarantee required to NBMIM by the Council of Bureaux on the International Green Card System. The draft law includes a separate article which shall amend the Law on compulsory motor insurance of civil liability no. 414-XVI of 22.12.2006 with the art. 351 which will stipulate that the external financial guarantee is set out by the National Bureau at the request and in the amount required by the Council of Bureaux. The insurer contribution to the external financial guarantee is calculated as the ratio between the amount of the guarantee to the number of insurers licensed to practice compulsory internal and external motor liability insurance.
The above mentioned draft law has been approved in the first reading in the Parliamentary session of the Republic of Moldova of 05.11.2015 and is awaiting for the final approval.
In order to improve and consolidate the NCFM supervisory powers in the field of capital market, Polish experts have examined and proposed amendments to the new Regulation on Capital Market Abuse which partially transposes the Regulation (EU) No 596/2014 of the European Parliament and of the Council of 16.04.2014.The new regulation establishes the regulatory framework for identifying capital market abuse, including in reference to capital market insider trading, unauthorized disclosure of privileged information and to market manipulation, along with measures for the prevention and avoidance of the market abuse aimed at providing for the integrity of the capital market and for the consolidation of protection and trust of investors in this market.
Project Assumptions
In the reporting quarter the Twinning Project has provided the first input to achieving the fulfilment of commitmentsof 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 from compliance-based supervision to the establishment of the risk-based supervision for the three sectors of the non-banking financial market.
The undertaken activities will be subsequently continued and developed within the relevant project activities in line with the Twinning Work Plan.
2B - ACHIEVEMENT OF MANDATORY RESULTS
Results and indicators of achievement (as in Longframe) / State of achievement/ problems encounteredComponent 1 – Strengthening operational and institutional capacities of the NCFM.
Indicator of achievement (copied from longframe)
- Strengthening operational and institutional capacities of the NCFM accomplished.
- Internal procedures/manuals/rules developed in line with the EU best practice.
Activity 0.1Project inception and kick – off meeting
Benchmarks:
The kick–off conference organized in the second month of the project.
Relevant counterparts and stakeholders informed about the goals of the project.
State of achievement:
Activity successfully completed and the result achieved.
The kick – off conference was organized jointly by the Polish and Moldovan partners, in PalatulRepubliciiin Chisinau on 30October 2015. The purpose of providing a first official contact to all stakeholders involved in the project and presenting the project to the media and the public at large was successfully achieved. In order to guarantee widepublic information about the start of the project, the meeting was concluded with a press conference and a press release was prepared.
The nature of this meeting was operational and was attended by representatives of the European Union Delegation to the Republic of Moldova, the Embassy of the Republic of Poland in Chisinau, the high level representatives of the Parliamentand the Government of the Republic of Moldova, the NCFM, the KNFas well as key Moldovanfinancial market participants i.e. the National Bank of Moldova, Moldova Stock Exchange, National Securities Depository of Moldova, investment firms, independent registrars and insurance companies as well as central savings and loan associations.
Representatives of 3 media companiesprovided press coverage of the meeting.
The kick-off meeting gave the participants the opportunity to acquiredetailed information about the project objectives, its purposes and implementation plan. The project summary, containing key information on the project, itsstakeholders and the project purpose was distributed among the participants.Activity 1.1. Development of conceptual framework of Risk-Based Supervision on non-banking financial market.
The Activity 1.1 was carried out within the first expert mission.
Benchmarks:
Recommendations on the steps to be taken in order to establish the risk based supervision of insurance sector in the NCFM developed.
State of achievement:
Activity successfully completed and the result achieved.
Interactive workshop on risk-based supervision establishment delivered.
During the workshop the STE from the KNF presented practical aspects associated with the risk-based supervision from the perspective of the KNF as well as other EU Member States. An analysis of two complex case-studies,followed by discussions between the KNF and NCFM experts,was conducted during the workshop.
The review of the current legislation and practices regarding risk-based supervision of insurance market was completed as well. Based on that review and discussions with the NCFM experts the recommendations on the steps to be taken in order to establish the risk-based supervision of the insurance sector in the NCFM were developed and included in the elaborated Review report.
Activity 1.6. Strengthening the capacities against market abuse, manipulations and insider transactions (part 1).
Benchmarks:
Review of the NCFM’s capacity in the field of combating market abuse in the capital market (market manipulation and insider trading) and workshops for the NCFM and market participants performed.
State of achievement:
Activity successfully completed and the result achieved.
Workshop on combating market abuse in the capital market (market manipulation and insider trading) for the NCFM and market participantswas delivered. During the workshop STEs from the KNF presented practical aspects associated with the inside information, market manipulation and market abuse from the perspective of the relevant EU rules.
The review of NCFM’s capacity in the field of combating market abuse in the capital market (market manipulation and insider trading) is completed.
The Polish experts have verified the NCFM powers envisaged in the Moldovan law and the way the provisions on market abuse are constructed as well as how the legal framework and the NCFM capacity in the end influence the process of effective combat of market abuse.
The Polish experts developed the review report with gap analysis in regard to NCFM’s capacity in the field of combating market abuse, including such aspects as inside information definitions, publication of information by the issuers, delay of publication of inside information, unlawful/unauthorised disclosure of inside information, legitimate behaviour, market soundings, accepted market practices, insider lists, transactions implemented by the management personnel, suspicious transactions and orders report. Relevant recommendationswere included in this report as well.
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.
Component 3 – Insurance Companies.
Indicator of achievement (copied from logframe)
- Strengthening operational and institutional capacities of NCFM to supervise and regulate insurance companies sector accomplished.
Component 4 – Savings and Credit Associations (Credit Unions) and Pension Funds.
Indicator of achievement (copied from logframe)
- Strengthening operational and institutional capacities of the NCFM to supervise and regulate savings andcredit associations (credit unions) and pension funds sector accomplished.
2C. ACTIVITIES IN THE REPORTING PERIOD